The central government said on June 2 that service charges levied by restaurants were completely illegal and called on the National Restaurant Association of India (NRAI) to immediately end the practice. The decision was made during a meeting between the NRAI and the Department of Consumer Affairs over discussions regarding objections from consumers being forced to pay service charges.
No more service charges
The move came just after the Center became aware of several media reports and resentments registered by many consumers on the National Consumer Helpline, according to a Mint report.
Additionally, in a letter to the NRAI Chairman, Consumer Affairs Secretary Rohit Kumar Singh said restaurants and eateries collect service charges from consumers by default, even after such collection is voluntary. The secretary had also pointed out that consumers were also forced to pay service charges often set at arbitrarily high rates by restaurants. In addition, the secretary further added that consumers had been “falsely misled” about the legal status of these charges and had been harassed by restaurants when they requested that they be removed from the bill.
According to an official statement, major restaurant associations attended the meeting, including the National Restaurant Association of India (NRAI) and the Federation of Hotel and Restaurant Associations of India (FHRAI) and consumer organizations.
Important questions raised by consumers on the DoCA’s National Consumer Hotline regarding service charges were also discussed. In addition, guidelines on fair business practices regarding billing for services were also mentioned.
Paying the service fee is optional
Restaurant associations have noticed that when a service charge is mentioned on the menu, it enforces an implied consent from customers to pay the cost. Hotels/restaurants primarily use service fees to pay workers and staff and are not charged for the experience or food served to the consumer.
Consumer organizations have also noted that the collection of service charges is manifestly arbitrary and constitutes an unfair and restrictive commercial practice under consumer protection law. While questioning the legitimacy of such a charge, it was pointed out that since nothing prevents hotels/restaurants from fixing their food costs, adding an additional charge in the name of service charge is detrimental consumer rights.
Kabir Suri, Chairman of the NRAI, said the levying of service charges is “neither illegal nor an unfair business practice as alleged, and this debate in the public domain creates unnecessary confusion and disruption in the proper functioning of the restaurant”.
“The service charge is transparent, worker-friendly, and is also recognized by numerous court orders that have been shared with the department. In addition, the government also derives revenue from the service charge as the tax is paid by restaurants. on the same”, he said.
Additionally, the FHRAI said on June 2 that a restaurant charging a service fee is neither illegal nor against the law. The association also illustrated that a service charge, which can be marked like any other charge collected by an establishment, is also part of the invitation offered by the restaurant to potential consumers. Whether or not they want to patronize the restaurant is up to people, FHRAI said in a separate statement.
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