Service charge

Can restaurants ask you to pay extra? Here’s what we know so far

Even as the Delhi High Court has asked the Center to go to a single-judge bench to seek redress against an order banning service charges by hotels and restaurants, restaurants can levy the charges on customers up to at the next hearing on August 31. Here’s what we know so far on the issue and also who said what:

What is the problem?

Hotels and restaurants levy a service charge on customers in the order of 5-10% on top of the bill. The Consumer Affairs Department has received complaints from consumers about restaurants making this charge mandatory, embarrassing consumers in case they refuse to pay the service charge.

After the complaints, the department took action. He called a meeting with restaurants and hotels on June 2, during which the collection of service charges was discussed. At the meeting, the department said the service charge was illegal and called on the National Restaurant Association of India (NRAI) to immediately stop the practice.

Subsequently, on July 4, the Central Consumer Protection Authority (CCPA) issued guidelines to prevent unfair commercial practices and the violation of consumer rights with regard to the collection of service charges in hotels. and restaurants. The guidelines stated that hotels or restaurants should not add a service charge automatically or by default to the food bill.

The restaurants challenged the guidelines in the Delhi High Court, after which the court ruled in their favor and suspended the guidelines on July 20.

What does the government say?

The Department of Consumer Affairs has called service charges levied by restaurants illegal. He said there was no legal value attached to this tax charged to consumers and that the government would come up with legal wording on this.

In a letter to the NRAI in late May, Department of Consumer Affairs Secretary Rohit Kumar Singh said that restaurants and eateries collect service charges from consumers by default, although the collection of such charges is voluntary and at discretion. consumers and not required by law.

Singh also said consumers were also being misled about the legality of such charges and harassed by restaurants when they asked to remove such charges from the bill amount. “Given that this issue affects consumers as a whole on a daily basis and has significant consumer rights ramifications, the department has found it necessary to examine it more closely and in detail,” the letter said.

Also at the Delhi High Court on Thursday, Additional Solicitor General (ASG) Chetan Sharma, appearing for the Center and the CCPA, said the service charge “takes the color” of a “quasi-governmental or governmental charge” and caused embarrassment if one refused to pay.

What hotels and restaurants said?

At the meeting in early June, restaurant associations countered the government’s claims by saying that when a service charge is mentioned on the menu, it implies an implied consent from the consumer to pay the charge. Service charges are used by restaurants/hotels to pay staff and workers and are not charged for the experience or food served to the consumer by the restaurant/hotel, they added.

“Media reports regarding the decision allegedly made at the Department of Consumer Affairs meeting today regarding the legality of the service charge are false. The Department has heard the views of all stakeholders and will consider all contributions before making a decision on the matter. Until final elimination, service fees are still very legal,” the NRAI said in a tweet in June after the meeting.

In its petition to the Delhi HC, the industry body had said: “The collection of service charges has been a common practice in the hospitality industry for over 80 years, which is evident from the fact that the Supreme Court ruled learned about this concept a long time ago. in 1964.”

What the Court Said

While upholding guidelines banning service charges on July 20, the Delhi High Court, “Don’t pay. Do not enter the restaurant. It’s a question of choice. Judge Yashwant Varma, who is hearing the case, also said restaurants must prominently display the service charge levy on their menus and other locations.

On Thursday, August 18, during the hearing of the case, a bench of Delhi Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad allowed the Center and the CCPA to present a brief before the single judge bench on pleas challenging the guidelines, who will now hear the case on August 31.

In addition, the division’s bench told restaurants, “You (restaurants) don’t have to levy a service charge to pay your employees. You are responsible and obligated to pay your employees under various laws, it is your obligation under the law.

However, the court said restaurants can impose service charges on customers at this time.

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