Explained: What Are Service Charges?

Recently, a fight broke out in a Noida mall between restaurant staffers and customers over the services charges levied by the restaurant. The police led an investigation into the matter and apprehended five people. The brawl began when one of the customers requested the removal of 10% on their entire bill.

However, the situation quickly intensified when the matter went to the manager, leading to an argument between with female customer.

"A woman resident of Sector-51 along with 12 members of her family had gone to have dinner at Duty Free restaurant in Sector-75. After having dinner here, a bill of about Rs 12,000 was handed in which Rs 970 was levied as service charges. Heated argument ensued over levying of service charges and in a few minutes, the people from both sides started beating each other," said Deputy Commissioner of Police Noida, Harish Chander.

The Police added, "The people who came to eat the food had received discount coupons from Amazon. On receipt of the bill, when these people showed Amazon coupons and insisted on not paying service charge, the restaurant management said that it is not possible to give discount and waive off service charge at the same time. The heated argument started on this only."

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What are Service charges?

When dining at a restaurant, the bill typically consists of a few key elements. Firstly, there are the expenses incurred for the food and beverages consumed. Additionally, government taxes such as the Goods and Services Tax (GST) are levied on the total bill. Alongside these costs, it is common for restaurants to include a service charge ranging from 5% to 10% as part of the overall bill.

What are the guidelines regarding the Service charges?

1. By default, hotels and restaurants are not permitted to include a service charge in the bill for food and beverages.

2. They are prohibited from collecting service charges using any alternative names as well.

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3. It is mandatory for these establishments to provide clear and explicit information to customers, emphasizing that paying the service charge is entirely voluntary and optional.

4. In addition, restaurants and hotels are restricted from imposing any form of entry restrictions or withholding services based on whether the customer chooses to pay the service charge.

5. They are strictly prohibited from collecting any service charge from customers by adding it to the food bill and subsequently applying taxes on the total amount.

What happened ahead?

The Department of Consumer Affairs has written to Kabir Suri, the President of the National Restaurant Association of India (NRAI), and Suresh Poddar, the President of the Federation of Hotel and Restaurant Association of India (FHRAI). Rohit Kumar, department secretary wrote that service charges are optional and shouldn't be "imposed forcefully on consumers, especially when consumers are dissatisfied with the service provided to them by the restaurant¡±

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It is quoted in the letter, "I implore you to appropriately counsel the members of your association not to insist on imposing a service charge on customers on an obligatory basis, particularly when a customer asks to have it removed from the bill. You would concur that any such fee is similar to tips or gratuities, which a customer may choose to give willingly based on how happy they are with the quality and level of service received from the establishment.¡±

Additionally, Delhi High Court is also hearing a case regarding the regulations of the service charges.