New norm banning service charges has created unnecessary confusion: National Restaurant Association of India

Restaurants and hotels generally levy a service charge of 10% on the food bill. The new guidelines prevent hotels and restaurants from collecting service charges by any other name. They will now have to inform the consumer that the service charge is voluntary, optional and at the consumer’s discretion.

The restaurant industry in India is valued at Rs 4.24 trillion. NRAI is the largest industry body representing over 500,000 restaurants in the country. (representative image)
The restaurant industry in India is valued at Rs 4.24 trillion. NRAI is the largest industry body representing over 500,000 restaurants in the country. (representative image)

Slamming the new guidelines issued by the Central Consumer Protection Authority (CCPA) on service charges, the National Restaurant Association of India (NRAI) on Wednesday said that the latest directives have once again created unnecessary confusion among the consumers, leading to disruption in smooth business operations of restaurants.

Earlier this week, the CCPA barred hotels and restaurants from levying service charges automatically or by default on food bills and allowed customers to file complaints in case the directives issued by it are violated. It also furnished guidelines for preventing unfair trade practices and violation of consumer rights on levying of service charges.

Restaurants and hotels generally levy a service charge of 10% on the food bill. The new guidelines prevent hotels and restaurants from collecting service charges by any other name. They will now have to inform the consumer that the service charge is voluntary, optional and at the consumer’s discretion.

“Through these repeated guidelines, there is an attempt to start a campaign against this restaurant industry practice (of collecting service charge) without any legal basis. It is also relevant to state that extra charges are being levied by many other industries, including some government agencies. However, the guidelines are issued only for the restaurant industry,” NRAI said in a statement.

Service charge is a part of the owner’s decision regarding the total price payable by a customer with regards to the sale or service of a product and constitutes one of the components of the total price of the product, NRAI said, adding that neither the government nor any authority can interfere with the decision of the business owner in this regard.

The restaurant industry in India is valued at Rs 4.24 trillion. NRAI is the largest industry body representing over 500,000 restaurants in the country.

“The legality, reasonableness or justification of levying service charge has been considered by the Supreme Court of India, high courts, national consumer disputes redressal commission, erstwhile monopolies and restrictive trade practices commission and by the income tax authorities. The levy of service charge has been upheld in various judicial pronouncements,” NRAI said.

Levy of service charge also has a socio-economic angle, claimed NRAI. The industry body said that while generally tips are paid to and pocketed by staff who serve the customers, nothing is shared with those back-of-the-house employees.

“The system of service charge envisages point-wise distribution even to the back-of-the-house staff whose contribution is thus recognised and acknowledged in the form of a part of the service charge collected from the customer,” it added.

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