Explaining service charge by restaurants and the unsavoury row over it

Terming the service charge illegal at restaurants, the consumer affairs ministry has asked the National Restaurant Association of India (NRAI) to immediately stop the practice. According to a report by News18, the ministry also said there is no legal sanctity attached to this levy that is charged to consumers and the government will come up with a “robust framework” to ensure strict compliance of its 2017 guidelines, which keeps hotels and restaurants from charging for service. What is a service charge? A service charge is a tip or a direct transaction between the customer and the wait staff. It’s a fee collected to pay for services associated with the purchase of a primary product or service. The charges are applied at the time of the transaction. A service charge is collected by hospitality sectors and food and beverage industries as a fee for serving customers. Why are hotels under the scanner? Following complaints from consumers, the ministry had scheduled a meeting on 2 June with the NRAI to discuss the issues pertaining to service charges levied by restaurants. Restaurants usually charge a 10 per cent service charge over the total bill. “The meeting follows as a result of DoCA taking notice of a number of media reports as well as grievances registered by consumers on the National Consumer Helpline (NCH)," the Ministry of Consumer Affairs recently said in a statement while calling the meeting. In a letter to the NRAI recently, Consumer Affairs Secretary Rohit Kumar Singh had said that restaurants and eateries are collecting service charges from consumers by default, although it is supposed to be voluntary and at the discretion of consumers. The consumer affairs department had said that the charges are often “fixed at arbitrarily high rates” by restaurants and consumers are being “falsely misled on the legality of such charges and harassed by restaurants on making a request to remove such charges from the bill amount”. “Since this issue impacts consumers at large on a daily basis and has significant ramification on the rights of consumers, the department construed it necessary to examine it with closer scrutiny and detail,” it said. The letter also pointed out the 2017 guidelines issued by the consumer affairs department. What are the 2017 guidelines? The Department of Consumer Affairs issued guidelines in April 2017, clarifying that paying a service charge or tip to staff, and how much to tip, is left to the discretion of customers. Hotels and restaurants cannot compulsorily collect the amount from them. The department, which comes under the Ministry of Consumer Affairs, Food, and Distribution, had chalked the guidelines after noticing that some hotels and restaurants are charging tips from customers “without their express consent in the name of service charges”; some are restraining consumers from entering their premises if they do not agree to pay a service charge, and customers are paying tips to waiters in addition to service charge under the mistaken impression that it is part of the taxes. “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,” the guidelines noted. Charging for anything other than the prices mentioned on the menu card and/or restricting the customer’s entry or forcing him/her to pay the service charge as a pre-condition to placing the order would amount to unfair trade practice. In such cases, the customer can approach a Consumer Disputes Redressal Commission/Forum and is entitled to be heard and redressed. What was discussed at the 2 June meeting? The consumer affairs department officials told the hotel and restaurant representatives that an “additional charge in the name of service charge is detrimental to the rights of consumers”. “Since this adversely affects millions of consumers on a daily basis, the department will soon come up with a robust framework to ensure strict compliance by the stakeholders,” the ministry stated. The NRAI, however, told the ministry that charging for service is a “matter of individual policy” of a restaurant. There is “no illegality in levying such a charge”, it said. The restaurant body also argued that “various judicial orders which recognize/uphold levy of service charge”, and levying of service charge is “beneficial for workmen as a class, who are employed in the establishments, and any move to the contrary would be detrimental to the interests of workers — and against the labour-friendly stance of the government”. The ministry, however, stated, “Considering entry of a customer to a restaurant/hotel as an implied consent to pay service charge would amount to imposition of an unjustified cost on customer as a condition precedent to placing an order for food and would fall under restrictive trade practice under the Act.” The NRAI has claimed in a statement that the department will review all inputs before deciding on the matter. “Until final disposal, service charge is still very much legal,” it said.