With the Centre’s appeal pending in Delhi High Court, can restaurants add service charges to food bill? Here’s all you need to know.
Hotels and restaurants can levy service charges from customers on food bills till August 31, when the Delhi High Court will hear the Centre’s appeal against a court order that stayed its guidelines on service charges.
The court in its previous hearing had asked why restaurants recover service charges from consumers as an additional and separate levy. Ahead of the next hearing, we take a look at the issue involving service charges and what various stakeholders have said about the same.
SERVICE CHARGE ROW
Hotels and restaurants automatically levy service charges on customers in the range of 5-10 per cent over and above the food bills. The consumer affairs department later received complaints from consumers about the compulsory charge.
The government then held a meeting with hotels and restaurants on June 2 and asked the National Restaurant Association of India (NRAI) to immediately stop the “illegal” practice.
Within two days, the regulatory authority Central Consumer Protection Authority (CCPA) issued guidelines to prevent hotels and restaurants from levying service charges. The new guidelines stated that eateries should not add service charge automatically or by default on food bills.
The National Restaurant Association of India (NRAI) and the Federation of Hotels and Restaurant Associations of India challenged this move in Delhi High Court and on July 20, a single judge bench stayed the government guidelines.
The Centre then filed an appeal against this order and the matter will be taken up again on August 31.
WHAT DID THE CENTRE SAY?
The consumer affairs ministry said there is no legal sanctity attached to service charge and it will come out with a legal framework to end this practice.
Additional Solicitor General Chetan Sharma told the high court on August 16 that while the service charge is in the nature of a tip, the impression given to consumers is as if it is a governmental levy or a governmental tax.
“The consumers face embarrassment when they don’t pay or they are asked to pay. That is the reason hundreds of complaints were received,” he said.
The Centre further said in its appeal that the impugned order was passed without appreciating that the guidelines have been issued for safeguarding the rights and interests of the consumers.
“It was passed post-haste without appreciating that the guidelines seek to protect the consumers from unfair trade practices and violation of consumer rights due to mandatory collection of service charge and adding such charge automatically or by default in the food bill without allowing the consumer the choice or discretion to decide whether they want to pay such charge or not,” the Centre said in its appeal.
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WHAT DID RESTAURANTS SAY?
Restaurant associations have said that the service charge was not a government levy and it was for the benefit of the restaurant employees and was not a substitute for “tips”.
Counsels appearing for restaurants also said in court that the government does not prohibit service charges and when it is made clear by the restaurant that there would be a levy of service charge, it becomes a matter of contract.
“Levy of service charge has been a standing practice in the hospitality industry for more than 80 years. It has a socio-economic angle. The system of levying service charges ensures that there is a systematic and logical distribution of service charge collection amongst the employees and not just the employee serving the customer in the restaurant. This ensures that the benefit is divided equally among all the staff workers including the utility workers and back staff,” NRAI had said, while opposing the Centre’s guidelines.
THE COURT’S VIEW
On July 20, while staying the guidelines banning the service charge, the Delhi High Court said, “Don’t pay. Don’t enter the restaurant. It’s a matter of choice.”
The court further asked the eateries to prominently display the levy of service charge on their menus and other places.
While hearing the Centre’s appeal on August 16, the Delhi High Court remarked that restaurants can increase food prices to absorb this charge instead of recovering it in the form of an additional charge over and above the total bill.
“Increase your food prices. No problem. Because you are entitled to fix a rate for your food but don’t levy it separately,” the court told the restaurant associations, adding that service charge is connected to consumers and not just the employees.
The high court bench of Delhi Chief Justice Satish Chandra Sharma and Justice Subramonium Prasad also allowed the Centre and the CCPA to make a submission before the single-judge bench on pleas challenging the guidelines, which will now hear the case on August 31. For the time being, eateries can levy service charges on customers.
