The government will soon propose a legal framework to stop restaurants collecting service charges from customers, as the practice is “unfair”, Consumer Secretary Rohit Kumar Singh said on Thursday.
After a meeting with representatives of restaurant associations as well as consumers, Singh said that although the associations claim the practice is legal, the Department of Consumer Affairs is of the opinion that it violates consumers’ rights and that it is an “unfair commercial practice”.
“We will soon be working on a legal framework because there were guidelines from 2017 that they did not enforce. Guidelines are generally not legally enforceable,” he told PTI.
The meeting was attended by representatives from National Restaurant Association of India (NRAI), Federation of Hotel and Restaurant Associations of India (FHRAI) and consumer organizations including Mumbai Grahak Panchayat and Pushpa Girimaji.
A legal framework will be legally binding on them to put an end to this practice. Usually, consumers confuse service charge and service tax and end up paying, he noted.
During the meeting, representatives from the NRAI and FHRAI said charging service fees was not illegal.
An official statement said that during the meeting, major issues raised by consumers on the department’s National Consumer Helpline were discussed. These related to the mandatory levying of service fees, adding default fees without the express consent of the consumer, removing the fact that these fees are optional and voluntary, and embarrassing consumers if they resist paying these fees.
Consumer organizations have observed that the charging of service charges is patently arbitrary and constitutes an unfair and restrictive business practice under the Consumer Protection Act, according to the statement.
Questioning the legitimacy of such a charge, it was pointed out that, since nothing prevents restaurants/hotels from setting their food prices, the inclusion of an additional charge in the name of service charges is detrimental to the rights of consumers. , according to the press release.
In a statement, the NRAI said the issue was also raised in 2016-17 and the association provided its response to the government.
“Today the NRAI reiterated the points as they were raised earlier in 2017. This issue had also been satisfactorily explained by us to the Competition Commission of India on a matter raised by them in January 2015,” he said.
NRAI Chairman Kabir Suri said the levying of service charges is “neither illegal nor an unfair business practice as alleged, and this debate in the public domain creates unnecessary confusion and disruption in the proper functioning restaurants”.
“The service charge is transparent, worker-friendly, and is also recognized by numerous court orders that have been shared with the department. In addition, the government also derives revenue from the service charge as the tax is paid by restaurants. on the same,” he said. .
During the meeting, the FHRAI said it clarified that a restaurant charging a service fee is neither illegal nor against the law.
The association explained that a service charge, like any other charge collected by an establishment, is part of the restaurant’s invitation to potential customers. It is up to customers to decide whether or not they wish to patronize the restaurant, FHRAI said in a separate statement.
“…service charges are intended for the benefit of staff and therefore some establishments make a conscious choice to adopt a policy which benefits their staff members. The levying of service charges is a general practice adopted in worldwide. It is not illegal or violate any law. Each institution is free to create its own policy in this regard,” said FHRAI Vice President Gurbaxish Singh Kohli.
Regarding concerns about transparency in adding service charges to the bill, FHRAI clarified that the charges are disclosed up front and are clearly printed under a separate heading in the bill as as “fee”, not as “tax”. Thus, there is total transparency as to the amount, rate and purpose of the fee.
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