The Tasteless Controversy over Service Charges in Restaurant and Its Progress
The Issue-
According to the Ministry, almost all the restaurants levy service charges to their customers. And in case a customer is aware that it is not mandatory and wants to get it removed or is willing to tip the server directly, they have a hard time convincing the management why they don’t want to pay it.
In recent times, several complaints have been received by the Consumer Department elaborating their dilemma which say that refusing to pay service charge leads to public embarrassment and spoil the whole dining experience as at the end of it, they either pay the unfair charge quietly and exit the restaurant feeling cheated or try hard to get it removed. Also, consumers don’t know where the money collected in this way goes.
The Government
The service charge levied by restaurants has been called illegal by the consumer affairs ministry and the National Restaurant Association of India (NRAI) has been asked to cease the practise from the immediate effect as it is adversely impacting consumers.
On this NRAI responded that the matter had come into light in 2016-17 as well and they have submitted their response to the government. It says that everything has already been discussed and there was nothing new which the Department mentioned in its letter for the meeting on June 2, 2022.” There have been many complaints against the restaurants that they are making service charge binding on their patrons. Seeing that the Ministry of Consumer Affairs had issued Guidelines on Fair Trade Practices Related to Charging of Service Charge from Consumers by Hotels/Restaurants”.
In the guideline it has been clearly highlighted that “a component of service is fundamental in the provision of food and beverages ordered by a customer, and therefore the pricing of the product includes both the cost of goods and service”. Further it reads that hotels and restaurants charging tips from customers “without their express consent in the name of service charges” comes in unfair trade practice. Suggesting a way of doing it the guidelines reads that the bill “may clearly highlight that service charge is not mandatory, and the service charge column can be left blank so that a customer can fill it if he or she wants to pay the service charge.
In April, 2017 the Department of Consumer Affairs came up with guidelines where they have clarified that paying or not paying any amount as a service charge or tip to staff is left to the discretion of customers and no hotel or restaurant can compulsorily collect it from them. The Ministry of Consumer Affairs, Food and Distribution through its Consumer Affair Department noticed that some hotels and restaurants are not only charging tips from customers but also barring them from entering their premises if they refuse to pay a service charge.
A customer remains under the mistaken impression that service charge is a part of the taxes and in addition they pay tip to the staff. “A customer’s tip or gratuity is for hospitality received beyond the basic minimum service already stipulated between him and the hotel management.” The guidelines state that “it is a distinct transaction between the customer and the hotel or restaurant personnel, which is entered into at the customer’s discretion.” Unfair commercial conduct would be charging anything other than the prices listed on the menu card and/or restricting the customer’s access or compelling him or her to pay the service charge if placing an order.
Hotel and Restaurant Association
The meeting held on 2nd June, 2022 was attended by representatives of National Restaurant Association of India (NRAI), Federation of Hotel & Restaurant Associations of India (FHRAI) along with consumer organisation and Mumbai Grahak Panchayat as well as Pushpa Girimaji. In their defence, NRAI denied that levying service charge is illegal or unfair trade practice as alleged, and said that this debate in public domain is creating unnecessary confusion and disruption in smooth operations of restaurants.” They argued that the service charge was transparent and worker friendly which was also recognised by many judicial orders. In addition, the government also gets revenue from it as tax is paid by restaurants on the same.
The restaurant trade group also argued that there are “various judicial orders which recognize/uphold the levy of service charge,” and that levying a service charge is “beneficial for workmen as a class, who are employed in establishments, and any move to the contrary would be detrimental to the interests of workers — and against the government’s labour-friendly stance.”
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