The Central Consumer Protection Authority (CCPA) released a statement on Monday, 4 July, barring hotels and restaurants from levying service charge on customers. It also allowed customers to file complaints in case of violation.
The matter has been contending for a long time with the National Restaurant Association of India (NRAI) claiming that it is restaurants’ right to levy this charge. The government feels otherwise.
The CCPA comes under the Ministry of Consumer Affairs and has released five guidelines to stop the levying of service charge.
How does this affect you? What to do about it? Here’s everything you should know.
What is a service charge?
A service charge is the gratuity/tip paid by a customer in appreciation of the staff’s service. A direct tip is received by the particular waiter, whereas the service charge is collected and paid to the service staff proportionally up to the supervisory level by hierarchy.
It is to make up for the traditionally low salaries received by service staff such as waiters, bartenders, etc, and is usually 10-15 percent calculated on the total food bill before taxes.
According to the CCPA and other government guidelines from 2017, tipping and gratuity should be the customer’s choice and not a mandatory charge.
What is the Central Consumer Protection Authority (CCPA)?
The CCPA is a regulatory body established under Section 10(1) of the Consumer Protection Act, 2019. The CPA, 2019 replaced the Consumer Protection Act of 1986.
The CCPA’s aim is to protect customers from improper trade practices and false advertisements. It is also supposed to protect customers from hazardous goods and services.
What are the new guidelines?
The CCPA issued the following guidelines to protect customers from levying of service charges, which are considered a ‘restrictive trade practice’ by the body.
(i) No hotel or restaurant shall add a service charge automatically or by default in the bill.
(ii) Service charge shall not be collected from consumers by any other name.
(iii) No hotel or restaurant shall force a consumer to pay the service charge and shall inform the consumer that the service charge is voluntary, optional, and at the consumer's discretion.
(iv) No restriction on entry or provision of services based on the collection of service charge shall be imposed on consumers.
(v) Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount.
What can a customer do if they are still forced to pay it?
The customer is not required to pay the service charge against their wishes. If they are forced, they may consider taking the following actions:
(i) Request the concerned hotel or restaurant to remove the service charge from the bill amount.
(ii) Lodge a complaint on the National Consumer Helpline (NCH) by calling 1915 or through the NCH mobile app.
(iii) File a complaint against unfair trade practice with the Consumer Commission. The Complaint can also be filed electronically through the e-daakhil portal, www.edaakhil.nic.in for its speedy and effective redressal.
(iv) Submit a complaint to the District Collector of the concerned district for investigation and subsequent proceeding by the CCPA. The complaint may also be sent to the CCPA by email at com-ccpa@nic.in.
What led to this?
The government guidelines of 2017 said it was the customer’s choice to pay the service charge and cannot be applied mandatorily.
“Tips or gratuity paid by a customer is towards hospitality received by him/her beyond the basic minimum service already contracted between him/her and the hotel management. It is a separate transaction between the customer and the staff of the hotel or restaurant, which is entered into, at the customer’s discretion.”Guidelines from 2017
The NRAI on 23 May stated that levying service charge is not illegal.
"Information regarding the amount of service charge is mentioned/displayed by restaurants on their menu cards and otherwise also displayed on the premises, so that customers are well aware of this charge before availing the services."The National Restaurant Association of India
A meeting was called on 2 June by the CCPA which was attended by representatives of different restaurant associations. The meeting was to discuss restaurants making service charge mandatory and not informing the customers that it was optional.
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