Consumer Can Refuse to Pay: Govt Explains Stand on Service Charge

The government said that in some cases, service charges can be viewed as being an unfair trade practice.

The government said that charging of ‘service charges’ can be treated as ‘unfair trade practice’ in some cases. (Photo: iStockphoto)

The Ministry of Consumer Affairs has issued a press release clarifying its stand on service charges collected by hotels and restaurants. It has also written to the state governments in this regard.

While the ministry has clarified that service charges are discretionary/voluntary and a consumer dissatisfied with the services can have it waived off, it might be difficult to implement it in practice.

The government issued a press release clarifying its stand on service charge collected by hotels and restaurants. (Photo Courtesy: PIB Screengrab)

Also Read: Didn’t Enjoy Restaurant Visit? You Can Now Say No to Service Fee

What Does the Law Say About Service Charge?

Service charge, unlike service tax, is not imposed or collected by the government. In many restaurants, ‘service charge’ in the range of 5-20 percent is collected, which a consumer is forced to pay irrespective of the kind of service provided to him. Since this is not a tax or charge imposed by the government, adding service charges to the bill by restaurants is not an offence under the Finance Act, 1994 and hence government cannot take any proactive action on hotels.

The government’s latest press release also made a mention of the Consumer Protection Act, 1986. The act states that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice, is to be treated as an unfair trade practice.

The act also states that a consumer can make a complaint to the appropriate consumer forum against such unfair trade practices. A complaint to the consumer forum can be made against any of the following:

• An unfair trade practice adopted by any trader or service provider
• The services hired or availed of, suffer from deficiency
• A trader or service provider, has charged for the goods or for the service in excess of the price:

1. Fixed by or under any law
2. Displayed on the goods or any package containing such goods
3. Displayed on the price list exhibited by him by or under any law
4. Agreed between the parties

In other words, consumers who are not satisfied with the services can approach the relevant consumer forum for the deficiency in service.

Text from the Consumer Act, 1986.

What Does the Government’s Clarification Say?

The ministry called for clarification from the Hotel Association of India, which replied that the service charge is completely discretionary and should a customer be dissatisfied with the dining experience he/she can have it waived off. Therefore, it is deemed to be accepted voluntarily.

The ministry has written to the state governments to sensitise companies, hotels and restaurants about the provisions of the Consumer Protection Act. They have also advised them to disseminate information through display at the appropriate place in the hotels that the service charges are discretionary/voluntary and a consumer dissatisfied with the services can have it waived off.

Text from the Consumer Act, 1986.

Is the Implementation Easy?

In response to a question in the Lok Sabha in November 2016, the government said that charging of service charges by hotels and restaurants can be treated as ‘unfair trade practice’ if it is charged without the knowledge and consent of the consumers, against which a consumer can file a complaint in a Consumer Forum.

In other words, if the hotels are informing consumers and are displaying on their menu cards about the service charge, it may not amount to an ‘unfair trade practice’. In fact, the NRAI (National Restaurant Association of India) issued a clarification in December 2016 that levy of service charge is valid  and that many judicial pronouncements supported the levy of service charge.

(This article was originally published on Factly.)