Centre will bar restaurants from levying service charge
NEW DELHI: The government will frame new rules, along with a legal framework, to prevent restaurants from levying service charge on diners, which is an “unfair trade practice”, consumer affairs secretary Rohit Kumar Singh said on Thursday.
Consumers often mix up “service charge” imposed by eateries with service tax, which is a statutory levy under the Goods and Services Tax or GST, Singh said, following a meeting of the department of consumer affairs with restaurant associations and consumer-rights organisations on the issue of service charge.
Service charges were being levied by default without “express consent of consumer” and by “suppressing that such a charge is optional and voluntary and embarrassing consumers if they resist paying such charge etc”, an official statement said.
The meeting was attended by major restaurant associations including the National Restaurant Association of India and Federation of Hotel & Restauframework rant Associations of India (FHRAI) as well as consumer organisations, including Mumbai Grahak Panchayat.
The issue has been in contention for years now. Restaurant owners defend the practice by saying that ample declarations are made at premises for a customer to know that they will need to pay a service charge if they eat at their business, while the government has said that customers should retain the right to decide whether they want to only after they have had a meal.
The government had published guidelines on fair-trade practices related to service charge by hotels and restaurants in 2017, but these have not been followed by restaurants. “It is only after completing the meal that customer is in a position to assess quality of service… if a hotel/restaurant considers entry of a customer to imply consent to pay a fixed amount, it is not correct,” the guidelines say.
But these guidelines aren’t enforceable and a new legal will bar service charges altogether, the government official said.
In a statement issued by the NRAI on Thursday, the restaurant body said their representatives attended the meeting and put forth their arguments but said the government has not issued any directions for them to stop the levy of service charge and that discussions were still on.
“Our point is very clear, if the restaurants are clearly displaying on their menus and in restaurant premises that they will be charging a service charge, we are giving customers the choice of whether they want to avail the service or not. If they are not happy with a particular food item they have ordered, they most restaurants give an instant resolution to this by either replacing the item or providing some kind of compensatory discount. That matter gets solved there. The money from service charge is not pocketed by the owner, it is equally distributed between everyone who works to make your experience better,” said Kabir Suri, the president of NRAI.
However, at Thursday’s meeting, the government did not accept these arguments. Consumers-rights organisations say service charges are arbitrary and illegal since eateries were at free to price food and beverages according to their policies.
According to the consumer affairs ministry, as per the 2017 guidelines, a customer placing an order amounted to his agreement to pay prices in the menu along with applicable taxes.
“Charging for anything other than the aforementioned, without express consent of the consumer, would amount to unfair trade practice under the Consumer protection Act,” the official statement said.
The government’s opinion, as expressed in today’s meeting, is that a “customer’s implied consent to pay service charge would amount to imposition of an unjustified cost on customer as a condition precedent to placing an order for food and would fall under restrictive trade practice under the Act”.