Service Charge Levied by Restaurants is Legal in India? Here Is What We Know

A row has recently sparked up regarding the act of restaurants levying service charges on customers with the consumer affairs ministry calling for a robust framework, and the restaurants saying that the same is very much legal in India until further notice. A meeting has already been conducted between the government and the National Restaurant Association of India (NRAI)  as consumers have been complaining about service charge levied by restaurants. The department of consumers affairs has called levying service charge by restaurants an “unfair trade practice”, but there have been contradictions.

Service charge is used by restaurants/hotels to pay the staff and workers and is not charged for the experience or food served to consumer by the restaurant/hotel. Here is everything we know on the service charge row:

Government Holds Meeting

The government on Thursday, June 2, held a meeting with representatives of associations of restaurants as well as consumers, following complaints on service charges levied by the eateries. In the meeting, consumer affairs secretary Rohit Kumar Singh reportedly said that even as restaurant associations claim the practice is legal, the the consumers affairs department thinks that levying service charge adversely affects the rights of the consumers and it is an “unfair trade practice”. It asked the NRAI to immediately stop the practice, as per reports.

“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,” Singh was quoted as saying by news agency PTI.

Major restaurant associations including National Restaurant Association of India (NRAI) and Federation of Hotel & Restaurant Associations of India (FHRAI) and consumer organizations including Mumbai Grahak Panchayat, Pushpa Girimaji etc participated in the June 2 meeting.

What Consumer Affairs Ministry Said

“The Department of Consumer Affairs (DoCA) will soon come up with a robust framework to ensure strict compliance by the stakeholders with regard to service charge levied by restaurants and hotels as it adversely affects consumers on a daily basis,” it said in a statement after the meeting.

“During the meeting, major issues raised by the consumers on National Consumer Helpline of DoCA relating to service charge such as 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 etc. were discussed. Further, guidelines on fair trade practices related to charging of service charge by hotels/restaurants dated 21.04.2017 published by DoCA were also referred to,” said the statement.

The ministry further added, “As stated in the earlier guidelines dated 21.04.2017 published by DoCA, placing an order by a customer amounts to his agreement to pay prices in the menu along with applicable taxes. Charging for anything other than the aforementioned, without express consent of the consumer, would amount to unfair trade practice under the Act. Further, 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.”

Restaurants Counter Claim

During the meeting, restaurant associations countered the claims of the government by saying that when service charge is mentioned on the menu, it involves an implied consent of the consumer to pay the charge. Service charge is used by restaurants/hotels to pay the staff and workers and is not charged for the experience or food served to consumer by the restaurant/hotel, they added.

“Media reports regarding decision allegedly taken at Department of Consumer Affairs meet today with respect to the legality of service charge are untrue. Department heard views of all stakeholders and will review all inputs before deciding on the matter. Until final disposal, service charge is still very much legal,” the NRAI said in a tweet later.

Read all the Latest Business News here