Legal experts divided over service charge in restaurants

By: | Updated: March 5, 2017 11:05 AM

Opinion appears to be divided among legal experts on the government's approach on service charge in restaurants, with a section terming it totally "illegal and unfair" trade practice and the other favouring making the levy optional.

The debate on the issue has been raging since the January 2 notification of the government asking restaurants to put up notice making service charge optional. (Reuters)

Opinion appears to be divided among legal experts on the government’s approach on service charge in restaurants, with a section terming it totally “illegal and unfair” trade practice and the other favouring making the levy optional. The debate on the issue has been raging since the January 2 notification of the government asking restaurants to put up notice making service charge optional.

Notwithstanding the directives of the Ministry of Consumer Affairs, restaurants have been making it mandatory for foodies to pay service charge between 5 and 20 per cent of the total bill.

The service charge, levied on the total bill, is in addition to the compulsory taxes like Value Added Tax (VAT), service tax and Swachh Bharat cess.

This is a “forced tip”, “illegal” and “unfair trade practice”, said noted consumer activist Bejon Misra whose view was shared by advocate Biraja Mahapatra.

“Service charge should be completely done away with. Hotels and restaurants inflate bills in the name of this charge which is absolutely illegal,” said Mahapatra.

Both of them strongly felt that the government should have brought a strict law to ban service charge instead of the notification making it optional for the consumer.

However, differing with them, senior advocate Sukumar Pattjoshi supported the government initiative saying, “Service charge should be made optional as it is like a tip which you may or may not pay.” This, however, requires legal clarity which can only come from the judiciary and someone has to file a writ petition in this regard, he added.

Some restaurants when spoken to, confirmed that they were levying around 10-15 per cent service charge on total bills.

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“Yes we are billing the service charge also,” one of the restaurant owners said when his attention was drawn to the notification that the service charge cannot be made mandatory.

Aghast with the government’s middle path approach, Misra, also the founder of Consumer Online Foundation and consumer protection portal ‘jagograhakjago.com’ said, “It should be done away with like we made MRP inclusive of all taxes. The menu cards should also carry a fixed price based on quantity of food and star category of restaurant.”

“Government can allow competition based on quality, quantity and location. Consumers cannot be charged service charge, it is unfair trade practice,” he said, adding, “State governments must bring an ordinance to make it mandatory not to take service charge over and above the price.”

Similarly, Mahapatra said, “The Centre’s approach in making service charge an option is wrong. They are supposed to make laws which are binding and not give options.”

As per the government notification, hotels and restaurants are required to put up a notice that it is the sole discretion of a consumer to pay the service charge or have it waived.

“The Department of Consumer Affairs has asked state governments to sensitize companies, hotels and restaurants regarding provisions of the Consumer Protection Act, and also advise them to disseminate information through display at the appropriate place in hotels/restaurants that ‘service charges’ are discretionary/ voluntary and a consumer dissatisfied with services can have it waived off,” the notification said.

In the absence of a clear law, the experts said that one can still approach a consumer forum against restaurants refusing to waive off the service charge and urged consumers to not hesitate in filing complaint in this regard.

“Restaurants can be penalised if they do not put up notice as per government direction. Consumer Protection Act 1986 protects you from any deficiency in services,” Pattjoshi said.

Asking consumers to get an FIR lodged against such restaurants, Misra said, “In case a restaurant charges service charge, pay the same and report the matter to the nearest police station and get an FIR. Once several consumers do that then they can claim compensation from the restaurant as it is deemed to be unfair after the Government notification.”

He further said, “Under Consumer Protection Act 1986 it is deemed as Unfair Trade Practice as it charges more than the printed price. However, clarity from the Centre and a strong law with stringent punishment for overcharging is desirable.”

The Centre’s notification has said that it received several complaints from consumers alleging that restaurants are taking ‘service charge’ in lieu of tips, which they are forced to pay irrespective of the kind of service provided.

It had said it is the discretion of the consumer and no restaurant/hotel can force anyone to pay service charge.

According to Consumer Protection Act, any trade practice for sale or service that adopts unfair or deceptive method falls under the category of ‘unfair trade practice’ and the law provides for redressal of such grievances.

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