Price of Service

9 July 2022

The Central Consumer Protection Authority (CCPA) was established in July 2020 under The Consumer Protection Act, 2019, to promote, protect, and enforce the rights of consumers as a class, and to investigate, prosecute, and punish violators issued guidelines on Monday July 4, 2022 with regards to the service charge being levied by hotels and restaurants to curb unfair trade practices, and protect the interest of consumers.
Why were the guidelines issued?
In 2017, the Department of Consumer Affairs under the Ministry of Consumer Affairs, Food & Public Distribution had issued guidelines which stated that customers only had to pay the prices displayed on the menu card along with the government taxes. Furthermore, the guidelines made it the discretion of the customers as to whether or not to tip the hotel staff. Restaurants and hotels however, continued to add the service charge to the bills.
The CCPA took cognizance of the grievances regarding levying service charge by default, without the consent or informing consumers. On June 2, 2022 the Department of Consumer Affairs under the Ministry of Consumer Affairs, Food & Public Distribution, held a meeting with the National Restaurant Association of India (NRAI) as well as several consumer organisations since it had received an increasing number of complaints from customers that they were being forced to pay service charges, which was often fixed at arbitrarily high rates and that they are even harassed if they requested to remove the same from the bills. Thereafter, it was announced that the Centre would shortly release a robust framework to ensure strict compliance of its 2017 guidelines.
Against this, the NRAI defended the practice, stating it was a matter of individual policy and that levying such the charge was not illegal. It was further contended that, the service charge generated additional revenue to the Government since restaurants and hotels paid taxes on the prices which were charged to the customers.
Where does the fund go?
Restaurants and hotels claimed that a major chunk of the service charge thus collected goes to the staff, while the rest goes towards the staff welfare fund. In addition to the salaries, the service charge worked as an incentive for the staff. According to the hoteliers, patrons may decide not to pay the service charge however, the backroom staff would not get anything. A service charge was used ensured to partly offset the costs of the staff as well as to all reward staff members on even basis.
What do the guidelines issued by CCPA say?
The CCPA has issued five major guidelines which stipulate:
i. No hotels or restaurants shall add service charge automatically or by default options in the billing; ii. The service charge shall not be collected from consumers by any other manner; iii. Consumers shall not be forced to pay service charge and to be clearly informed hotels and restaurants that the charge is voluntary, optional, and at the consumer’s discretion; iv. There shall be no restriction upon the provision of services based on collection and/or payment of service charge imposed on consumers; and v. Service charge shall not be collected by incorporating and/or adding the same along with the food bill and levying the GST on the total amount.
What can a customer do in case of violation of these guidelines?
The customer has four options at escalating levels as per the following:
Firstly, a customer can make a request to the hotel or restaurant to remove the service charge from her bill;
Secondly, a customer can lodge a complaint on the National Consumer Helpline (NCH) by calling on the number 1915 or on the NCH mobile app as an alternative dispute redressal mechanism at the pre-litigation level;
Thirdly, a customer can lodge a complaint to the Consumer Commission; and Finally, a customer can submit a complaint to the District Collector of the concerned district for an investigation and subsequent proceedings by the CCPA.
Service charge was considered a ‘beneficial’ payment since it was meant for the benefit of the staff of the establishment. However, eventually the guidelines issued shall now put a load on the products and services of the hotels and restaurants.


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