'Not Legally Enforceable': Govt To Stop Restaurants From Levying Service Charge

While consumer groups called the service charge arbitrary, restaurant bodies maintained that it is legal.

NRAI says no illegality in restaurants levying service charges.

(Photo: iStock)

The government will soon come out with a legal framework to stop restaurants from levying service charges on customers as the practice is "unfair," Consumer Affairs Secretary Rohit Kumar Singh said on Thursday, 2 June.

After a meeting with representatives of restaurant associations as well as consumers, Singh said that although restaurant representatives claim the practice is legal, the Department of Consumer Affairs termed it an "unfair trade practice" because it adversely affects the rights of consumers.

"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."

Consumer Affairs Secretary Rohit Kumar Singh

What Was Discussed in the Meeting?

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

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

An official press release said that during the meeting, major issues raised by the consumers through the National Consumer Helpline of the department were discussed.

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

Consumer organisations observed that levying service charge is patently arbitrary and constitutes an unfair as well as restrictive trade practice under the Consumer Protection Act.

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

'Service Charge Not Illegal,' Restaurant Bodies Say

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

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

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

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

During the meeting, FHRAI clarified that a restaurant collecting service charge is neither illegal nor in violation of the law.

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 patronise 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 charge is a general practice adopted across the globe. It is neither illegal nor violating any law. Each establishment is free to create its own policy in this regard."

FHRAI Vice President Gurbaxish Singh Kohli

Regarding concerns over transparency, FHRAI clarified that the charge is disclosed in advance and is clearly printed as a separate heading in the bill as a "charge" and not "tax." He added that there is complete transparency regarding the amount, rate, and purpose of the service charge.

(This story has been published in an arrangement with PTI.)