Hotels and restaurants can't levy service charge by default, says CCPA

The Central Consumer Protection Authority (CCPA) on Monday barred hotels and restaurants from levying service charge by default in food bills, and allowed customers to file complaints in case of a violation of the norms. There should not be any collection of service charge by any other name, it added.

The hotels have to clearly inform the consumer that paying the service charge is at the consumer’s discretion, the CCPA said.

The guidelines empower consumers to complain against the practice under various provisions of the Consumer Protection Act, tagging it as an ‘unfair trade practice,’ and a violation of consumer rights.

“No restriction on entry or provision of services based on collection of service charge shall be imposed on consumers,” it added.

“It is part of the guidelines, which means that legal action can be initiated against the restaurant by the CCPA, as under the new Consumer Protection Act it is empowered to take action under relevant portions of the law,” Bijon Misra, a noted consumer rights activist and founder of Consumer Online Foundation, which pioneered the ‘Jago Grahak Jago’ campaign, told Business Standard.

Misra said what will happen now is that restaurants and hotels will start including the ‘service charge’ in the price itself, which could inflate the bill.

CCPA also said that service charge cannot be collected by adding it along with the food bill and levying GST on the total amount.

If any consumer finds that a hotel or restaurant is levying service charge in violation of the guidelines, he or she can request the establishment concerned to remove it from the bill amount.

“Victory for the common man is that after this, if anybody does not want to pay service charge, he can’t be forced to do that,” Misra said.

He said as a positive fallout of the decision, waiters and others in hotels might be tempted to provide better service to the customer in the hope of a good ‘tip’.

The CCPA, in the guidelines said a tip or gratuity is towards hospitality received beyond basic minimum service contracted between the consumer and the hotel management, and constitutes a separate transaction between the consumer and staff of the hotel/restaurant at the consumer’s discretion.

Only after completing the meal, a consumer may be in a position to assess the quality, as well as service, and decide whether or not to pay a tip, and if so, then how much.

The decision to pay a tip by a consumer does not arise merely by entering the restaurant or placing an order.

“Therefore, service charge cannot be added in the bill involuntarily, without allowing consumers the choice or discretion to decide whether they want to pay such a charge or not,” the guidelines said.

Meanwhile, according to an official statement, an aggrieved consumer can lodge a complaint on the National Consumer Helpline (NCH), which works as an alternative dispute redressal mechanism at the pre-litigation level, by calling 1915 or through the NCH mobile app. They can also file complaints with the Consumer Commission.

According to an official statement, the decision to totally bar service charge was taken after a number of complaints were registered in the National Consumer Helpline (NCH) by consumers on levying of service charge.

Consumers complained that restaurants were making service charge compulsory and adding it to the bill by default, suppressing that paying such a charge was optional and voluntary, and embarrassing consumers in case they resist paying service charge.

“Various cases relating to levying of service charge have also been decided by consumer commissions in favour of consumers, holding the same as an unfair trade practice and in violation of consumer rights,” the official statement said.