Explain service charges by restaurants and the unsavory argument over it

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Restaurant Association of India and government disagree over service charge. Will he be arrested?

Representative image. AFP

Calling service charges illegal in restaurants, the Ministry of Consumer Affairs has called on the National Restaurant Association of India (NRAI) to immediately stop the practice.

According to a report by News18the department also said there was no legal value attached to this tax being charged to consumers and that the government would come up with a “robust framework” to ensure strict compliance with its 2017 guidelines, which prevent hotels and restaurants to charge for the service.

What is a service charge?

A service charge is a tip or a direct transaction between the customer and the servers.

It is a fee collected to pay for services associated with the purchase of a main product or service. Fees are applied at the time of the transaction.

A service charge is levied by the hospitality and food and beverage industries as a guest service charge.

Why are hotels under the scanner?

Following consumer complaints, the department had scheduled a June 2 meeting with the NRAI to discuss issues relating to service charges levied by restaurants. Restaurants typically charge a 10% service charge on the total bill.

“The meeting follows the DoCA’s consideration of a number of media reports as well as complaints registered by consumers on the National Consumer Helpline (NCH),” the Department of Consumer Affairs said recently in a press release when convening the meeting.

In a recent letter to the NRAI, Consumer Affairs Secretary Rohit Kumar Singh said restaurants and eateries collect a service charge from consumers by default, although this is supposed to be voluntary and at the discretion of consumers. .

The consumer department said fees are often ‘set at arbitrarily high rates’ by restaurants and consumers are ‘falsely misled about the legality of such fees and harassed by restaurants when they ask to remove these costs of the amount of the invoice”. .

“Given that this issue affects consumers as a whole on a daily basis and has significant consumer rights ramifications, the department has found it necessary to examine it more closely and in detail,” he said.

The letter also recalled the 2017 guidelines issued by the Department of Consumer Affairs.

What are the 2017 guidelines?

The Department of Consumer Affairs issued guidelines in April 2017, specifying that the payment of service charges or tips to staff, and the amount of tips, are left to the discretion of customers. Hotels and restaurants cannot necessarily collect the amount from them.

The department, which falls under the Department of Consumer, Food and Retail, had drafted the guidelines after noting that some hotels and restaurants were charging customers for tips “without their express consent in the name of service charges”; some bar consumers from entering their premises if they do not agree to pay a service charge, and customers pay servers tips in addition to the service charge under the mistaken impression that it is part of the taxes.

“Tips or gratuities paid by a guest correspond to the hospitality he receives beyond the basic minimum service already contracted between him and the management of the hotel. It is a separate transaction between the guest and hotel or restaurant staff, which is concluded, at the discretion of the guest,” the guidelines note.

Charging anything other than the prices mentioned on the menu card and/or restricting the customer’s entry or forcing them to pay the service charge as a condition of placing the order would constitute an unfair commercial practice.

In such cases, the customer may apply to a Consumer Dispute Resolution Commission/Forum and has the right to be heard and redressed.

What was discussed at the June 2 meeting?

Consumer department officials told hotel and restaurant representatives that an “additional charge in the name of service charges is detrimental to consumer rights.”

“As this affects millions of consumers daily, the department will soon come up with a robust framework to ensure strict compliance by stakeholders,” the department said.

The NRAI, however, told the ministry that charging for the service is a “matter of individual policy” of a restaurant. There is “no illegality in levying such a charge”, he said.

The restaurant body also argued that “various court orders that recognize/uphold the collection of service charges” and that the collection of service charges is “beneficial to laborers as a class, who are employed in establishments. , and any action to the contrary would be prejudicial to the interests of the workers — and against the pro-worker position of the government”.

However, the ministry said: “Considering a customer’s entrance to a restaurant/hotel as implied consent to pay a service charge would be tantamount to imposing an undue cost on the customer as a precondition to placing an order for food. and would be a restrictive business practice under the Act.

The NRAI said in a statement that the department would review all contributions before making a decision on the matter.

“Until the final elimination, service fees are still very legal,” he said.

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