Service charge

It is clearly stated by the government that paying the “service fee” is optional. How difficult is its application?

The Department of Consumer Affairs on Thursday warned restaurants against adding “service charges” to customers’ bills, calling the practice “illegal”. According to the ministry, a legal framework will soon be developed which, among other things, will prevent accommodation establishments from charging fees. The action is being prepared to safeguard the interests of consumers.

To discuss the issue of restaurant bills, the Department of Consumer Affairs (DoCA) convened the Federation of Hotel and Restaurant Associations of India (FHRAI) for a meeting on Thursday.

In a previous explanation, FHRAI said that a service charge, also known as a “tip,” is the amount customers give to staff at a restaurant or other comparable establishment.

What is the service charge?

It is a cost that is assessed to customers for a particular processing or facility, such as using an ATM outside the bank’s network or paying with a credit card at a retailer. It can also be called maintenance fee or customer service cost.

For items that go beyond using their products and maintaining a relationship with them, companies typically charge a service fee. Things that require more effort from the company or more one-on-one communication between customers and company representatives fall into this category.

Service charges are charges that are added to the base price of the good or , but it is not an optional expense. The customer must additionally pay the service fee, which is what the business chooses to charge, in order to purchase the good or service.

In cases such as exceeding a minimum required balance, receiving a paper statement, completing an international transaction or changing a debit card, many banks impose a service fee. Some banks even require an account to remain open for a minimum amount of time before it can be closed, in which case an early closing fee will be charged.

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What does “service charge” mean politically?

Unlike the “service tax”, the “service charge” is not levied or collected by the government. Restaurants charge service fees for the services they provide and keep that money for themselves. A customer is required to pay a “service charge” in many restaurants which can range from 5-20% regardless of the type of treatment they receive. The Finance Act 1994 does not consider the collection of service charges by restaurants to be illegal, so the government is unable to take preventive action against hotels.

The Consumer Protection Act 1986 was also mentioned in the most recent government press release. A trade practice that employs an unfair technique or a deceptive practice for the purpose of promoting the sale, use or supply of any goods or the provision of any service shall be treated as an unfair trade practice, according to the law. A consumer may lodge a complaint against such unfair commercial practices with the competent consumer forum, in accordance with the law. Any of the following entities may be the subject of a complaint to the consumer forum:

  • a business or service provider engaging in unfair business conduct
  • The services rented or consulted are inadequate.

  • A merchant or service provider has overcharged the price of the good or service.

  • or as required by any legislation

  • displayed on the products or any packaging containing them

  • listed on the price list it has posted by or under any law

  • between the parties, as agreed

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What does the government clarification say?

According to the government’s press release, the ministry sought clarification from the Hotel Association of India, which replied that the service charge is entirely optional and a guest can request to waive it if they don’t. is not satisfied with his dining experience. It is therefore assumed to have been consented to voluntarily.

The ministry has written to state governments advising them to disseminate information by posting at the appropriate place in hotels that the “service charge” is discretionary/voluntary and that a customer dissatisfied with the services can benefit from it. The ministry also wishes to make businesses, hotels and restaurants aware of the provisions of the Consumer Protection Act.

Is it easy to implement?

In response to a question from the Lok Sabha in November 2016, the government said that if a “service charge” is charged by hotels and restaurants without the knowledge and consent of customers, it can be considered a ” unfair commercial practice” for which a customer can lodge a complaint with a consumer forum.

In other words, it might not constitute “unfair business conduct” if hotels alert guests and disclose service charges on their menu cards. In fact, the National Restaurant Association of India (NRAI) clarified in December 2016 that the imposition of an it was legal and that numerous court decisions had confirmed it.

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The government’s most recent statement is ambiguous about whether or not hotels can collect fees in the first place, although some cities, such as Chandigarh, are giving hotels explicit orders not to. The customer’s decision to pay or not is theirs. Most consumers usually ask for the removal of the service charge and complain about the service level of the hotel or restaurant. It is also conceivable for hotels and restaurants to disagree with a customer’s choice, which could lead to a disagreement. The consumer forum can then become aware of all these problems. Government clarification essentially leaves room for individual judgement, which makes it difficult to execute in the absence of clear objectives.