Service charge not mandatory at restaurants and hotels: govt

New Delhi: The next time you dine out, you will be at liberty to not pay service charge if you are not happy with the service.

Consumers have the “discretion to pay service charge or not”, the Department of Consumer Affairs (DCA) said on Monday, adding that the billing of service charge by restaurants in addition to taxes is optional.

“A number of complaints from consumers have been received that hotels and restaurants are following the practice of charging ‘service charge’ in the range of 5-20%, in lieu of tips, which a consumer is forced to pay irrespective of the kind of service provided to him,” DCA said in a statement.

The National Restaurants Association of India (NRAI), an industry lobby group, is considering its options in response to the government’s statement.

“We’ll move the courts against this decision,” said Riyaaz Amlani, president, NRAI and chief executive of Impresario Entertainment and Hospitality Pvt. Ltd, which runs the popular Smoke House Deli restaurants and the Social chain of bars and cafes.

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“There are even judicial pronouncements to support that ‘service charge’ can be charged by hotels and restaurants,” NRAI said in a statement which cited previous judgments.

Hotels and restaurants will have to disseminate information through a display system that the ‘service charges’ are discretionary or voluntary and a consumer dissatisfied with the services can have them waived. DCA also asked states to sensitise companies, hotels and restaurants regarding the provisions of the Consumer Protection Act.

The DCA said the Consumer Protection Act, 1986 provides that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice, is to be treated as an “unfair trade practice”.

“A consumer can make a complaint to the appropriate consumer forum established under the Act against such unfair trade practices,” it added.

Following consumer complaints in this regard, the department sought a clarification from the Hotel Association of India, a lobby group for hotels in India.

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“The service charge is completely discretionary and should a customer be dissatisfied with the dining experience he/she can have it waived off. Therefore, it is deemed to be accepted voluntarily,” DCA quoted the industry lobby as saying.

Apart from service charge, restaurants charge 12.5% value added tax and 6% service tax.

Amlani said, “A restaurant or a hotel has every right to charge a fee for the service it provides, and also (decide) the quantum of the fee. A consumer has every choice not to come the next time. Service fee is charged legally and the restaurants pay necessary taxes to the government on the service charges. If it is made optional, and restaurants decide not to put it in bills, a parallel economy emerges based on tips that waiters may get from consumers and that will always be unaccounted.”

“Globally, service charge is very common but known by different names like tip in UK and gratuity in the US. Some restaurants don’t levy a service charge. We have always kept it optional and at the consumers’ discretion. If a consumer does not like the service and refuses to pay the service charge, we don’t force. This decision does not bring much change,” said Rahul Singh, founder and CEO of beer chain Beer Cafe.