On Thursday, the Consumer Affairs Ministry asked the hotels & restaurants associations to stop compulsory levying of “service charge” in their bills, calling it illegal, the news agency has learnt. The Ministry will come out with a legal framework to end this practice.

A top ministry official said there is no legal sanctity attached to this levy that is charged to consumers & the ministry officials flagged to the representatives of the restaurant & hotel owners’ associations that consumers often understand service charge as ‘service tax’ & end up paying this. They also flagged how different eateries charge different rates to include this in the bill.

Union consumer affairs secretary Rohit Kumar Singh chaired the meeting with representatives from the National Restaurant Association of India (NRAI), the Federation of Hotel & Restaurant Associations of India (FHRAI) & consumer organisations.

“Since this adversely affects millions of consumers on a daily basis, the department will soon come up with a robust framework to ensure strict compliance by the stakeholders,” the Ministry said in a statement. Officials maintained that the service charge or tip is voluntary & hence can’t be included in the bill.

The ministry also turned down the claims of representatives from NRAI & FHRAI that when service charge is mentioned on the menu, it involves an implied consent of the consumer to pay the charge.

“Considering entry of a customer to a restaurant or hotel as an implied consent to pay service charge is nothing but imposition of an unjustified cost as a condition precedent to placing an order for food.

This falls under restrictive trade practice under the Consumer Protection Act. Moreover, the amended Act defines an unfair contract. So, the new framework will spell out all the details of how to deal with this practice,” said an official. He added that the consent to pay the charge must be explicit.

President of NRAI, Kabir Suri said they have reiterated all facts with proof to the department that levy of service charge is neither illegal, nor an unfair trade practice as alleged. “This debate in the public domain is creating unnecessary confusion & disruption in smooth operations of restaurants. The service charge is transparent, worker- friendly & is also recognised by many judicial orders which have been shared with the department. The Govt also earns revenue from the service charge as tax is paid by restaurants on the same,” he said.

But officials said none of the judgements that were produced deal with the legality of service charge & paying any tax to government after collecting an extra charge doesn’t mean levying such charge is legal.

Vice-president of FHRAI, Gurbaxish Singh Kohli said levying service charge is a general practice adopted across the globe. “It is neither illegal nor violating any law. Each establishment is free to create its own policy in this regard,” he said.

Consumer organisations observed that levying service charge is patently arbitrary & constitutes an unfair as well as restrictive trade practice. They said since there is no bar on restaurants & hotels on fixing their food prices, including an additional charge in the name of service charge is detrimental to the rights of consumers.

(Only the headline and picture of this report may have been reworked by the LatestLaws staff; the rest of the content is auto-generated from a syndicated feed.) 

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