Neither illegal nor unfair: restaurants should not be isolated because service charges exist in all sectors

Union Trade, Food and Consumer Affairs Minister Piyush Goyal has done a wonderful job on turbo exports, but a critical segment of India’s consumer services sector has reason enough to wonder why he became the chosen one to get a raw deal. Following a meeting between the Department of Consumer Affairs and restaurant associations over the issue of service charges, the minister said on Friday that adding such charges to food bills was a “deceit”. The consumer secretary had also pointed out in a letter to the National Restaurant Association of India (NRAI), representing more than 500,000 restaurants, that they were charging service charges by default, even though payment of such charges was voluntary. These are strong words, but consider the facts.

Apart from the fact that the Center is trying to micromanage the area where market dynamics should be at play, charging service fees is neither illegal nor an unfair business practice as alleged. A series of court orders, even from the Supreme Court, recognize its levy. It has been argued in previous cases that a service charge is a “sales promotion deterrent”, a prerequisite for considering the business practice to be unfair. The former Monopolies and Restrictive Practices Commission said in a December 2001 decision that the charging of service charges could not be challenged in law because there was no provision prohibiting it. “The menu card clearly mentions the levy of additional service charge…the same is also displayed outside the restaurant, providing information to the customer in advance as well as before the order is placed for the food / the meal. A customer who can read the order for the type of dishes mentioned in the menu card can very well read the conditions mentioned in the said card before placing the order… Failure to read it would necessarily be at his own risk. . There is therefore no unfair practice or misleading method adopted…”. The assertion by restaurants that no consumer is forced to pay a service charge therefore has a lot of merit.

Additionally, the restaurants paid GST on the entire bill, including the service charge; therefore, it is quite strange that its legality is questioned. Service fees exist in all industries in various avatars. Almost every government department calls it a handling fee, delivery aggregators call it a delivery fee, ticketing platforms convenience fees, and airlines and airports levy all sorts of fees and surcharges. Yet restaurants are being singled out, bolstering the industry’s claims of being an easy target for the government. In most cases, these additional fees charged by other service providers do not come with prior notification, unlike restaurant service fees listed as chargeable on the menu. Additionally, while other service providers do not offer refunds or waivers of these fees, restaurants do offer this option to customers; if a customer does not wish to pay the service charge, restaurants waive them from their bill.

A large portion of the service fees collected goes to the staff, while the rest goes to a welfare fund to help them during difficult times. It works as an incentive for them and ensures that everyone is rewarded equally. After giving negligible support to the pandemic-ridden restaurant industry, it would be unfortunate if the Center targeted the earning power of India’s third-largest employee ecostructure. Ultimately, this could set a precedent for government overreach and lead to undue influence over pricing policies across industries. While consumer rights are paramount, the Center must not infringe on the legal rights of commercial establishments.

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