Service charge

Restaurants, government-locked horns over service charges | Latest India News

New Delhi: Restaurants won’t be able to force diners to pay a service charge, under new rules drawn up by the Consumer Affairs Department, but restaurants aren’t backing down yet. They claimed there was nothing illegal about it, hinting at a lengthy legal battle.


Read also | The center will prevent restaurants from charging service fees

Trade and Consumer Affairs Minister Piyush Goyal said on Friday that restaurants and hotels can “increase prices but cannot levy service charges without the explicit consent of the customer”.

On June 3, the government held a discussion on the issue with restaurant associations, following which Consumer Secretary Rohit Kumar Singh said the government was considering a legal framework to prevent restaurants from levying charges. service charges on diners, which he called “unfair trade”. practice” under the Consumer Protection Act.


Service charge is different from service tax, which is a legal levy under the Goods and Services Tax. It is not mandatory under Indian consumer laws, according to the Ministry of Consumer Affairs.

Service charges are a global practice, restaurants say. The restaurateurs claimed that a service charge on the food bill was not “illegal”. A Delhi restaurateur, requesting anonymity, said the case was “open to legal challenge”.

“Our position is that there are various legal judgments which show that service charges are not illegal and even the Supreme Court has recognized this,” said Prakul Kumar, secretary general of the National Restaurant Association of India.

Globally, service charges, often officially referred to as tips and gratuities, are common practice, from New York to Paris, although different rules apply. The New York State Department of Tax and Finance allows voluntary (tipping) and compulsory gratuities.


“The obligatory tip (is) automatically added to the invoice given to the customer. However, a mandatory tip is not taxable if all of these conditions are met: the amount is shown separately on the invoice; the charge is identified as a tip; and the company pays the total amount of the gratuity indicated separately to its employees. »

In France, a 15% service charge is automatically included in cafe and restaurant bills, according to this BBC report (https://bbc.in/3NqrLOY). This money is not paid directly to the server but to the restaurateur, but servers generally have a minimum hourly wage.

Industry body NRAI has contradicted an official statement from the Department of Consumer Affairs that the government will come up with a “legal framework to verify service charges”.


In a post on Twitter, he said “media reports of decisions allegedly made regarding the legality of the service fee are false.” The post said the ministry only took the views of all stakeholders before deciding on the matter.

However, Minister Goyal’s assertion that service charges are illegal pretty much settles the matter as far as the government’s position is concerned.

The service charge was levied by default without “consumer’s express consent” and “removing such charge to be optional and voluntary and embarrassing consumers if they resist payment of such charge, etc.,” according to an official statement. June 3.

The government is of the view that mandatory service charges constitute an unfair business practice under consumer protection laws.