Earlier this month, as the Department of Consumer Affairs, Food and Utilities called on hotels and restaurant associations to stop charging mandatory service charges, calling them illegal, the National Restaurant Association of India (NRAI) argued that the service charge is “still fully legal” until the government enforces a rule or legal framework to the contrary. As a result of this back-and-forth, many restaurateurs claim up to 30% of diners refused to pay the service charge. In fact, in some cases, customers who already paid the bill later emailed the restaurant asking for a refund of the service charge amount, explains Amrish Arora, a restaurateur who owns restaurants all over Maharashtra. Pranav Rungta, NRAI Mumbai Section Chief, adds, “Majority of customers have no problem paying the service charge, there are a few who have asked for it to be waived.” So how do they respond to such requests?
As restaurants split the service charge amount among staff members, they try to explain to customers why it’s crucial or offer them discounts instead.
A staff member at a restaurant in Delhi says, “Whenever we have customers who refuse to pay the service charge, we give them discounts and try to explain to them why the service charge is crucial.”
Amrish Arora adds that a customer asking for the service charge to be waived often snowballs other customers around them asking for the same, “even if they agreed to pay it before”. “Many restaurants offer discounts instead, so their staff doesn’t lose out on service charges. We also have customers who pay tips in addition to the service charge,” he adds.
However, the situation is slightly different in five-star hotels, where guests are willing to pay service charges, says Pradeep Shetty, co-secretary of the Federation of Hotel and Restaurant Associations of India ( FHRAI).
WHAT ARE THE SERVICE CHARGES?
This is the extra amount – ranging from 5% to 15% of your restaurant costs – added by restaurants to charge for services rendered, on top of the 5% GST (or 18% GST if the restaurant is inside a hotel). By law, the GST is mandatory, however, the service charge is meant to be optional. That’s why restaurants print it on the menu and some even display it on their boards at the entrance.
HOW ARE SERVICE FEES DISTRIBUTED BETWEEN STAFF?
In most cases, the restaurant distributes it equally among staff or adopts a points system, where it is distributed on the basis of experience/seniority
SO, ARE SERVICE CHARGES ILLEGAL?
Service charges are not illegal or in violation of any law at this time. No such rule prevents restaurants from applying a service charge to the entire bill. It’s like paying a delivery fee when using food delivery apps, or a convenience fee when buying a movie ticket or plane ticket on booking platforms. , and it is a common practice in all sectors.
APPROXIMATE SERVICE CHARGES
ONCE THE CUSTOMER HAS BEEN INFORMED OF THE SERVICE CHARGES IN ADVANCE, THIS IS NOT AN UNFAIR TRADING PRACTICE: NRAI
In its June 2 statement, the NRAI said, “Whether a restaurant collects a service charge is a matter of individual policy. There is no illegality in levying such a charge. Information regarding the amount of service charge is clearly mentioned/displayed by restaurants on their menu cards and premises. After a customer has been notified of such a charge, it is up to the customer whether or not to accept the restaurant’s offer when placing the order. The customer must exercise the option at that time to accept the offer of the price of the product plus the service charge or not to accept the said offer. The option cannot be exercised after consuming the food and complaining about the sampling service charge. Levying service charge is beneficial for workers as a class who are employed in establishments. Anything to the contrary would be detrimental to workers’ interests – and against the government’s pro-worker stance. It also brings in revenue to the government, since tax is paid on the same.
– Piyush GoyalMinister of Food and Consumer Affairs
THE SERVICE CHARGE MUST BE AT THE CHOICE OF THE CONSUMER: PIYUSH GOYAL, MINISTER OF FOOD AND CONSUMPTION
Food and Consumer Affairs Minister Piyush Goyal said restaurants cannot compulsorily add service charges to food bills. “It has to be the consumer’s choice. You (the restaurants) cannot add a service charge to an invoice. If you believe that certain additional benefits should be granted to employees, this cannot be imposed on customers. You can raise the prices/hike. We haven’t stopped restaurants from raising their prices. Restaurants will be wrong to say they will incur losses if the service charge is removed,” the minister said.
60% OF DINNERS HAVE PAID SERVICE FEES IN THE LAST MONTH: SURVEY
A recent survey asked diners what their common experience was with service charges when visiting a restaurant after the Department of Consumer Affairs asked hotels and restaurants to mandatorily stop them earlier this month?
60% said the restaurant charges a service charge and they pay it 20% said the restaurant does not charge a service charge 11% opted “can’t say” (didn’t pay attention or didn’t eat out in the last month)
Source: Local Circles
NO LEGAL PROVISION PROHIBITS THE CHARGE OF SERVICE FEES:
In a case involving a consumer and a pizzeria in December 2001, the New Delhi Monopolies and Restrictive Practices Commission (MRTP) observed in its decision that “the levying of service charges cannot be challenged in law because there is no provision prohibited levying such charges. The menu card clearly mentions the levy of an additional 9% service charge and the same is also displayed outside the restaurant. A customer who can read the type of dishes mentioned in the menu card as it is, can very well read the conditions mentioned in the said card before placing the order. Failure to read the same would necessarily be at one’s own risk. There is therefore no unfair practice or deceptive method adopted by the defendant.