Service Charge Levied By Restaurants Is 'Illegal', Will Design Legal Framework To Stop It: Govt

The government plans to design a legal framework to stop restaurants from levying service charges on customers.

Calling the practice 'unfair', Consumer Affairs Secretary Rohit Kumar Singh confirmed the news on Thursday.

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After a meeting with representatives of associations of restaurants and consumers, Singh said that although the associations claim the practice is legal, the Department of Consumer Affairs is of the view that it adversely affects the rights of the consumers. It is an "unfair trade practice."

"We will soon work on a legal framework because there were guidelines of 2017 which they have not enforced. The guidelines are not generally legally enforceable," he told PTI.

The meeting was attended by representatives of the National Restaurant Association of India (NRAI), the Federation of Hotel & Restaurant Associations of India (FHRAI), and consumer organizations, including Mumbai Grahak Panchayat and Pushpa Girimaji.

Changes after legal framework:

A legal framework will be legally binding on them to stop this practice. Usually, consumers get confused between service charge and service tax and end up paying, he noted.

'Levying of service charges was not illegal': Members of NRAI and FHRAI

There was a clash between govt and officials representing the restaurants, including members of NRAI and FHRAI. An official release said that significant issues raised by the consumers on the National Consumer Helpline of the department were discussed during the meeting.

Those were related to the compulsory levy of service charge, adding the charge by default without the consumer's express consent, suppressing that such charge is optional and voluntary, and embarrassing consumers if they resist paying such charge.

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Consumer organizations observed that levying service charges is patently arbitrary and constitutes an unfair and restrictive trade practice under the Consumer Protection Act, according to the release.

Questioning the legitimacy of such a charge, it was highlighted that since there is no bar on restaurants/hotels on fixing their food prices, including an additional charge in the name of service charge is detrimental to the rights of consumers, the release said.

In a statement, NRAI said the matter had also come up in 2016-17, and the association had provided its response to the government.

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"Today, NRAI reiterated the points as were put up earlier in 2017. We had satisfactorily explained this issue to the Competition Commission of India on a query raised by them in January 2015," it said.

NRAI President Kabir Suri said the levying service charge is "neither illegal, nor an unfair trade practice as alleged, and this debate in the public domain is creating unnecessary confusion and disruption in smooth operations of restaurants."

"The service charge is transparent, worker-friendly, and is also recognized by many judicial orders shared with the department. In addition, the government also earns revenue from the service charge as restaurants on the same pay tax," he said.

FHRAI clarifies restaurant collecting service charges is neither illegal nor violates the law:

Cafe Coffee Day | Photo: BCCL

The association explained that a service charge, like any other charge collected by an establishment, is part of the invitation offered by the restaurant to potential customers. It is for customers to decide whether they wish to patronize the restaurant or not, FHRAI said in a separate statement.

"... a service charge is meant for the benefit of the staff, and so, some establishments make a conscious choice to adopt a policy beneficial towards its staff members. Levying service charges is a general practice adopted across the globe. It is neither illegal nor violating any law. Each establishment is free to create its policy in this regard," FHRAI Vice President Gurbaxish Singh Kohli said.

'Charges Are Transparent'- FHRAI

LeopoldĄ¯s Cafe, Mumbai | Pinterest

Addressing concerns over transparency in adding service charge in the bill, FHRAI clarified that the charge is disclosed in advance, and the same is clearly printed as a separate heading in the bill as a "charge," not a "tax."

Thus, there is complete transparency concerning the amount, the rate, and the purpose of the charge.

(With inputs from PTI)

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