Service charge

Why recover service fees separately, HC asks restaurateurs

“The common man perceives it as a government. sampling’

“The common man perceives it as a government. sampling’

The Delhi High Court questioned on Tuesday why service charges are collected from consumers as an “additional tax” and “separate tax” while restaurants can instead raise their food prices.

A bench of Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad said: ‘That (the service charge as a government levy) is what an ordinary man gets. Raise the price of your food. No problem. Because you have the right to set a price for your food but do not charge it separately”.

The bench’s observation came as it heard an appeal by the Center against a July 20 High Court order suspending its guidelines barring hotels and restaurants from automatically levying service charges on food bills.

‘Bad impression’

Additional Solicitor General Chetan Sharma, representing the Centre, argued that even though the service charge is in the nature of a tip, the impression given to consumers is that it is a government levy or a tip. a government tax.

“Consumers are embarrassed when they don’t pay or are asked to pay. This is why we have received hundreds of complaints,” said Mr. Sharma, referring to complaints received by the Department of Consumer Affairs (DoCA) from consumers who said they were coerced into paying service.

The lawyer representing the restaurant associations said the service charge was not a government levy. He said the fee was collected for the benefit of restaurant employees and did not replace “tips”. The lawyer argued that when it is specified by the restaurant that there would be a service charge levy, it becomes a matter of contract.

To this, the bench hit back, saying: “[If] A person who doesn’t know the law or an illiterate person goes to a restaurant, you mean he makes a contract? A person who doesn’t understand the law is going to have a cup of tea, so they make a contract and they have to pay the service charge.”

The bench also noted that the service charge levy was “very consumer-related” and not just restaurant employees.

The Center and the Central Consumer Protection Authority (CCPA), in their appeal against the High Court’s July 20 order, said the guidelines, which admittedly were issued in the public interest, had been suspended without giving them a reasonable and adequate opportunity to explain their position.

The CCPA said its July 4 guidelines, prohibiting the collection of service charges, were intended to prevent unfair business practices and protect the interests of consumers. The CCPA also said it has received numerous complaints on the National Consumer Helpline regarding restaurants and hotels, including service charges in the default bill and failing to inform customers that payment is optional.

The background

On July 20, the High Court suspended CCPA guidelines prohibiting restaurants and hotels across the country from levying default service charges on food bills. The order came during the hearing of the pleas of the National Restaurant Association of India (NRAI), the Federation of Hotel and Restaurant Associations of India (FHRAI), as well as restaurateurs and promoters.

The NRAI, which has about 7,000 member restaurants across the country and nearly 2,500 member outlets in the National Capital Region, said charging service fees has been standard practice in the hospitality industry since over 80 years old.

The association had clarified that in the absence of a service charge, tips are generally paid by customers normally equivalent to 10% of the bill amount.

“This sum is pocketed by the servers/stewards who come into direct contact with the customer. This results in the deprivation of all components of tips going to the back of the house staff, including chefs/cooks/utility workers and others involved in sourcing raw materials, food preparation food and customer service,” read the NRAI’s plea.

The association specifies that the restaurants ensure a one-time distribution of the fee collected from customers over all staff, including backend staffers, whose contribution is thus recognized and recognized.

The High Court scheduled the case for a rehearing on August 18.