Restaurants will not be able to force diners to pay a service charge, according to new rules being framed by the ministry of consumer affairs, but eateries aren’t conceding yet. They have asserted there’s nothing illegal about it, hinting at a protracted legal battle.
Restaurants and hotels can “raise prices but cannot levy service charges without the customer’s explicit consent”, commerce and consumer affairs minister Piyush Goyal said on Friday.
On Thursday, the government held a discussion on the issue with restaurant associations, following which consumer affairs secretary Rohit Kumar Singh said the government was looking at a legal framework to prevent restaurants from levying service charges, which he called an “unfair trade practice” under the Consumer Protection Act.
Service charge is different from service tax, which is a statutory levy under the Goods and Services Tax. It is not mandatory under Indian consumer laws, according to the consumer affairs ministry.
Service charge is a global practice, eateries say. Restaurateurs have maintained that a service charge on the food bill is not “illegal”. One Delhi restaurateur, requesting anonymity, said the matter is “open to be legally contested”.
“Our stand is that there are various legal judgments that show that service charges aren’t illegal, and even the Supreme Court has acknowledged it,” said Prakul Kumar, secretary-general of the National Restaurant Association of India (NRAI), a lobby group.
Globally, service charges, often known as gratuities and tipping, are standard practice, from New York to Paris, although different rules apply. The New York State Department of Taxation and Finance allows both voluntary (tips) and mandatory gratuity.
“Mandatory gratuity (are) automatically added onto the bill given to the customer. However, a mandatory gratuity is not taxable if all of these conditions are met: the charge is shown separately on the bill; the charge is identified as a gratuity, and the business gives the entire separately stated gratuity amount to its employees,” New York government rules state.
In France, a 15% service charge is automatically included in cafe and restaurant bills. This money is not paid directly to the waiter but to the restaurant owner, but waiters generally have hourly minimum wages.
The NRAI has contradicted the statement by the consumer affairs ministry that the government will come out with a “legal framework to check service charge”.
“Media reports regarding decisions allegedly taken w.r.t legality of service charge are untrue,” it said in a Twitter post. The ministry only took the views of all stakeholders before deciding on the matter, it said.
Service charges were being levied by default without “express consent of consumer” and by “suppressing that such a charge is optional and voluntary and embarrassing consumers if they resist paying such charge, etc.”, according to a statement by the consumer affairs ministry on June 3.
The government’s view is that compulsory service charge constitutes an unfair trade practice.