Service charge

Hotels and restaurants are prohibited from charging default service charges on food bills: CCPA guidelines

In a recent initiative, the Central Consumer Protection Authority (CCPA) has published certain guidelines for the prevention of unfair commercial practices and the violation of consumer rights with regard to the collection of service charges in hotels and restaurants. .[1] The guidelines issued by the CCAC on July 4e, 2022 state that hotels and restaurants are not allowed to impose service charges automatically or by default on food bills. The CCPA has been informed through numerous grievances filed on the National Consumer Helpline that various restaurants and hotels are imposing service charges on food bills by default, without informing consumers that payment of these charges is voluntary and optional. It has also become common to impose a service charge on top of the full menu food price and applicable taxes, often in the form of other fees or charges. Therefore, in order to prevent unfair commercial practices and to ensure the protection of consumers’ interests with regard to the collection of service charges in hotels and restaurants, the CCPA has published the above-mentioned guidelines.

Role of the Central Consumer Protection Authority (CCPA)

The Central Consumer Protection Authority (CCPA) is a statutory authority established under the Consumer Protection Act 2019 to regulate matters relating to the infringement of consumer rights, unfair commercial practices and false or false advertising. misleading that are detrimental to the interest of the public and consumers, and to promote and enforce the rights of consumers as a class. Section 18(2)(1) of said Actempowers the CCPA to publish the guidelines necessary to prevent unfair commercial practices and protect the interests of consumers.

The new CCPA guidelines

The Central Consumer Protection Authority has issued the following guidelines –

  1. No hotel or restaurant should add a service charge automatically or by default to the bill.
  2. Service charges should not be collected from consumers under any other name.
  • No hotel or restaurant should force a consumer to pay a service charge and should clearly inform the consumer that the service charge is voluntary, optional and at the discretion of the consumer.
  1. No restrictions on entry or provision of services based on charging service fees will be imposed on consumers.
  2. The service charge will not be collected by adding it to the food bill and charging GST on the total amount.[2]

Rationale for New CCPA Guidelines

The reasoning behind the publication of the CCPA guidelines was also mentioned in the guidelines themselves, that a service component is inherent in the price of food and beverages offered by the restaurant or hotel. Thus, the pricing of a product includes both the goods and services component. Nothing prevents hotels or restaurants from setting the prices at which they want to offer food or drink to their consumers. Restaurant owners are free to raise their menu prices to be able to pay higher salaries to their employees. Thus, placing an order constitutes tacit consent to pay the prices of the food products displayed on the menu as well as the applicable taxes. Therefore, charging anything other than that amount would amount to an unfair trading practice under the Consumer Protection Act 2019.

Payment of a tip or gratuity for hospitality received is at the discretion of the consumer and is a separate transaction between the consumer and the hotel or restaurant staff. It is only after finishing the meal that a consumer is able to assess the quality and services, and decide whether or not to pay a tip or gratuity and, if so, how much. The consumer’s decision to pay a tip or tip is not mandatory and does not arise from the mere fact of entering the restaurant or placing an order. Therefore, a service charge cannot be levied on the default food bill, without giving consumers the choice or discretion to decide whether or not to pay that charge.

Furthermore, restricting a consumer’s entry on the basis of charging a service fee amounts to a business practice that imposes an undue cost on customers by forcing them to pay an additional service fee as a condition of ordering food and beverages, and it falls within the scope of “restrictive business practices” as defined Section 2(1)(nn) of the Consumer Protection Act 2019.

Remedies for violations of CCAC guidelines

If a consumer finds that a hotel or restaurant is charging a service charge in violation of the above guidelines, a consumer may

  1. Ask the hotel or restaurant concerned to remove the service charge from the invoice amount.
  2. File a complaint with the National Consumer Helpline (NCH), which operates as an alternative dispute resolution mechanism at the pre-litigation level by calling 1915 or via the NCH mobile app.
  • File a complaint against unfair trading practices with the Consumer Affairs Commission. Complaint can also be filed electronically through e-daakhil portal www.edaakhil.nic.in for its quick and efficient redress.
  1. File a complaint with the District Collector of the district concerned for investigation and further processing by the CCAC. The complaint can also be addressed to the CCPA by e-mail at the address [email protected].

Objections to the new CCAC guidelines on service fees

The National Restaurant Association of India (NRAI), which represents more than 500,000 restaurants across India, has strongly opposed the new CCPA guidelines. In a press release published on July 6e, 2022, the NRAI said that “the new government guidelines have no legal basis and have created unnecessary confusion among consumers, causing disruption to the smooth operation of restaurants.” A spokesman for the association said that “the guidelines, by the very nature of things, are only indicative and if such a change is necessary, there must be either a new law or an amendment existing laws”. [3]

Meanwhile, the Federation of Hotel and Restaurant Associations of India (FHRAI), the apex body for the hospitality industry, has also strongly opposed the order of the Central Personal Protection Authority. (CCPA) prohibiting hotels and restaurants from charging a default service charge on the food bill. According to Gurbaxish Singh Kohli, Vice President of FHRAI, “Most of these guidelines are already being followed by hotels and restaurants. It is extremely discouraging that the hospitality industry is constantly singled out. FHRAI is considering contacting the Central Consumer Authority for clarification and other suggestions.[4]

Conclusion

According to the July 4 press releasee, 2022 published by the Department of Consumer Affairs, Food and Distribution, a number of complaints have been registered with the National Consumer Helpline (NCH) by consumers regarding the collection of service charges. Issues raised by consumers include restaurants making service charges mandatory and defaulting them to the bill, removing that payment of these charges is optional and voluntary, and embarrassing consumers when they resist paying these service charges. . Various cases relating to the collection of service fees have also been decided by consumer commissions in favor of consumers, considering them an unfair commercial practice and in violation of consumer rights.[5]

The collection of service charges on food bills by restaurants and hotels has always been a moot point and the new CCPA guidelines have put an end to that debate. Prior to the announcement of the guidelines, the government’s position was that the collection of service charges must be expressly consented to by a consumer after the meal. Given the increase in unfair business practices adopted by restaurants and hotels, the new CCPA guidelines will develop a robust framework for enforcing strict compliance by stakeholders with respect to service charges imposed by restaurants. and hotels since the CCPA has the power to impose penalties and order an investigation by the District Collector or local police into any unfair business practice.

Richa Pushpan, Intern at SS Rana & Co. assisted in researching this article.