Govt to issue framework to stop restaurants from levying service charge

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

After a meeting with representatives of associations of restaurants as well as 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 and 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 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 them to stop this practice. Usually, consumers get confused between service charge and service tax and end up paying, he noted.

During the meeting, representatives of NRAI and FHRAI said that levying of service charges was not illegal.

An official release said that during the meeting, major issues raised by the consumers on the National Consumer Helpline of the department were discussed. Those were related to compulsory levy of service charge, adding the charge by default without express consent of consumer, suppressing that such charge is optional and voluntary, and embarrassing consumers if they resist paying such 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, 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.

"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 levying 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 said it clarified that a restaurant collecting service charge is neither illegal nor is 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 said.

About 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 with regard to the amount, the rate and the purpose of the charge.