The service charge imposed by hotels and restaurants on customers has often been a contentious issue. This came to a head in a Noida mall on June 18 when a fist fight broke out between customers and restaurant staff over a service charge of Rs 970.
Following a video of this incident going viral, the Department of Consumer Affairs issued a letter to Kabir Suri, President of the National Restaurant Association of India (NRAI), and Suresh Poddar, President of the Federation of Hotel and Restaurant Associations of India (FHRAI). The Department secretary Rohit Kumar wrote in the notification that service charges are optional and should not be imposed forcefully on consumers, especially when they are dissatisfied with the service provided to them by the restaurant.
Incidentally, the Delhi High Court has been hearing petitions filed by NRAI and FHRAI challenging July 4, 2022 guidelines of the Central Consumer Protection Authority (CCPA), directing hotels and restaurants not to levy service charge on food bills. As per the plea by NRAI, the guidelines against service charge were “arbitrary, untenable and ought to be quashed” as it was imposed without an appreciation of facts and circumstances. It contended that levying service charge had been a standing practice in the hospitality industry for more than 80 years. Even the Supreme Court had taken notice of this concept in 1964.
The plea pointed out the socio-economic angle in levying service charge. It said the charge ensured that there was a systematic and logical distribution of service charge collection among the employees and not just the employee serving the customer in the restaurant. This also ensured equal distribution of benefits among all staff workers, including utility workers and back staff, added the petition.
But CCPA’s guidelines were issued to prevent unfair trade practices and violation of consumer rights and it stated that the consumer could lodge a complaint with the National Consumer Helpline against this practice. It had said: “It has come to the notice of the CCPA through many grievances registered on the National Consumer Helpline that restaurants and hotels are levying service charge in the bill by default, without informing consumers that paying such charge is voluntary and optional. Further, service charge is being levied in addition to the total price of the food items mentioned in the menu and applicable taxes, often in the guise of some other fee or charge. It may be mentioned that a component of service is inherent in price of food and beverages offered by the restaurant or hotel. Pricing of the product thus covers both the goods and services component….Charging anything other than the said amount would amount to unfair trade practice under the Act.”
Earlier, both the Union government and CCPA had apprised the Delhi High Court that hotels and restaurants were openly flouting the guidelines and collecting service charge on food bills even when consumers were dissatisfied with the services. The authorities had submitted an application seeking vacation of stay granted by the High Court on CCPA’s July 4 guidelines prohibiting hotels and restaurants from levying service charge on food bills.
On July 20 last year, the Delhi High Court stayed the CCPA guidelines prohibiting levying of service charge. Justice Yashwant Varma issued a notice on the pleas filed by NRAI and FHRAI and sought a response from the Ministry of Consumer Affairs and CCPA. Justice Varma noted that the issue of service charge levying by the hotel industry was noticed way back by the Dewan Chaman Lal Committee which had submitted its report in June 1958 recommending the implementation of the continental system of service charge both with regards to its collection as well as disbursement.
Raising doubt about whether the pricing and levy of service charge would fall within the ambit of Section 2(47) of the Consumer Protection Act, 2019, the Court observed that the matter requires consideration and in lieu thereof, stayed the July 4 guidelines till the next date of listing.
However, the stay is subject to the members of the petitioner Association ensuring that the service charge in addition to the price and taxes payable and the obligation of customers to pay them are prominently displayed on the menu or other places where it may deemed to be expedient. Further, the members of the Association shall undertake not to levy or include service charge on any “take away” items, the Court said.
The order was challenged by the centre and CCPA which contended that adequate time and opportunity was not provided to them to present their case and the interim order was passed post haste. The order caused grave hardship to consumers as they were made to pay the service charge mandatorily without there being any element of discretion on their part. It added that after the July 4 guidelines, 1,105 more complaints were registered by consumers on the National Consumer Helpline regarding service charge.
The charge was being added automatically or by default to the food bill without allowing consumers the choice or discretion to decide on whether they wanted to pay or not, contended the plea. The authorities said the guidelines did not interfere with the right of restaurants or hotels to set the prices at which they wanted to offer their food and services to consumers.
In its counter affidavit, the CCPA said the petitioners had failed to appreciate the rights of the consumers, whose hard-earned money was unjustly collected automatically or by default in the name of service charge. It said that the objective of collecting mandatory service charge from consumers over and above the price of food items and applicable taxes was “unlawful” as no proportionate service was separately provided to them.
The Union Ministry of Consumer Affairs, Food and Public Distribution in June 2022 had asked eatery associations to stop levying service charges in their bills compulsorily, calling it illegal. The ministry had further said that it would come out with a legal framework to end this practice.
—By Shivam Sharma and India Legal Bureau