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Hotels and Restaurants barred from levying service charge by default on food bills: CCPA Guidelines

July 7, 2022
Wide shot of bottles and glasses in display cabinet at a bar in Scandic Hotel in Copenhagen, Denmark

By Rupin Chopra and Apalka Bareja

In a recent move, the Central Consumer Protection Authority (CCPA) has issued certain guidelines for the prevention of unfair trade practices and violation of consumer rights with regard to levying of service charge in hotels and restaurants.[1] The guidelines issued by the CCPA on July 4th, 2022 mandate that hotels and restaurants are not allowed to impose service charges automatically or by default on the food bills. It came to the notice of the CCPA through many grievances registered on the National Consumer Helpline that various restaurants and hotels have been imposing service charge on the food bills by default, without informing the consumers that paying such charge is voluntary and optional. It has also become a common practice to impose service charge 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. Therefore, in order to prevent unfair trade practices and ensure protection of consumer interest with regard to levy of service charge in hotels and restaurants, the CCPA issued the aforementioned guidelines.

Role of Central Consumer Protection Authority (CCPA)

The Central Consumer Protection Authority (CCPA) is a statutory authority established under the Consumer Protection Act, 2019 to regulate matters relating to violation of rights of consumers, unfair trade practices and false or misleading advertisements which are prejudicial to the interest of public and consumers, and to promote and enforce the rights of consumers as a class. Section 18(2)(1) of the said Act, empowers the CCPA to issue necessary guidelines to prevent unfair trade practices and protect consumers’ interest.

The new CCPA Guidelines

The Central Consumer Protection Authority issued the following guidelines-

  1. No hotel or restaurant shall add service charge automatically or by default in the bill.
  2. Service charge shall not be collected from consumers by any other name.
  • No hotel or restaurant shall force a consumer to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer’s discretion.
  1. No restriction on entry or provision of services based on collection of service charge shall be imposed on consumers.
  2. Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount.[2]

Rationale behind the new CCPA guidelines

The reasoning behind the issuance of the CCPA guidelines has also been mentioned in the guidelines itself, according to which a component of service is inherent in the price of food and beverages offered by the restaurant or hotel. So, the pricing of a product includes both the goods and services component. There is no bar on hotels or restaurants in setting the prices at which they want to offer food or beverages to their consumers. Restaurant owners are free to hike the prices of their food menu to be able to pay higher salaries to their employees. Thus, placing an order is an implied consent to pay the prices of food items displayed in the menu along with applicable taxes. Hence, charging anything other than the said amount would amount to unfair trade practice under the Consumer Protection Act, 2019.

Paying a tip or gratuity towards the hospitality received is at the discretion of the consumer, and constitutes a separate transaction between the consumer and staff of the hotel or restaurant. Only after finishing the meal, a consumer is in a position to assess the quality and services, and decide whether or not to pay tip or gratuity and if so, how much. The consumer’s decision to pay tip or gratuity is not obligatory and does not arise merely by entering the restaurant or placing an order. Therefore, service charge cannot be levied on the food bill by default, without giving the consumers any choice or discretion to decide whether or not they want to pay such charge.

Further, restricting the entry of a consumer based on the collection of service charge amounts to a trade practice that imposes an unjustified cost on the customers by forcing them to additional service charge as a condition precedent to placing order for food and beverages, and it falls under the ambit of “restrictive trade practices” as defined under Section 2(1)(nn) of the Consumer Protection Act, 2019.

 

Remedies for the violation of CCPA Guidelines

If any consumer finds that a hotel or restaurant is levying service charge in violation to the aforementioned guidelines, a consumer may-

  1. Make a request to the concerned hotel or restaurant to remove service charge from the bill amount.
  2. Lodge a complaint on the National Consumer Helpline (NCH), which works as an alternate dispute redressal mechanism at the pre-litigation level by calling 1915 or through the NCH mobile app.
  • File a complaint against unfair trade practice with the Consumer Commission. The Complaint can also be filed electronically through e-daakhil portal www.edaakhil.nic.in for its speedy and effective redressal.
  1. Submit a complaint to the District Collector of the concerned district for investigation and subsequent proceeding by the CCPA. The complaint may also be sent to the CCPA by e-mail at com-ccpa@nic.in.

 

Objections to the new CCPA guidelines on service charges

The National Restaurant Association of India (NRAI) which represents over 500,000 restaurants across India, has strongly opposed the new CCPA guidelines. In a statement released on July 6th, 2022 the NRAI stated that “the new government guidelines have no legal basis and have created unnecessary confusion among the consumers, leading to disruption in smooth business operations of restaurants.” A spokesperson from the association commented that “guidelines by the very nature of things, are only for guidance and in case there is a need for such change, there has to be either a new law or an amendment in the existing laws.” [3]

Meanwhile, the Federation of Hotel & Restaurant Associations of India (FHRAI), the apex body of the hospitality industry, has also taken strong objection to the Central Consumer Protection Authority (CCPA) order barring hotels and restaurants from levying service charges by default on the food bill. According to Gurbaxish Singh Kohli, Vice President, FHRAI, “Most of these guidelines are already followed by hotels and restaurants. It’s extremely disheartening that the hospitality industry is constantly singled out.” The FHRAI is planning to approach the Central Consumer Protection Authority seeking clarifications and to submit further suggestions.[4]

 

Conclusion

According to the press release dated July 4th, 2022 released by the Ministry of Consumer Affairs, Food & Public Distribution, a number of complaints have been registered in the National Consumer Helpline (NCH) by consumers with regard to levying of service charge. The issues raised by consumers include restaurants making service charges compulsory and adding it in the bill by default, suppressing that paying such charge is optional and voluntary, and embarrassing consumers when they resist paying such service charge. Various cases relating to levying of service charge have also been decided by Consumer Commissions in favor of consumers, holding the same as an unfair trade practice and in violation of consumer rights.[5]

Levying service charge on food bills by restaurants and hotels has always been a debatable topic and the new CCPA Guidelines has put an end to this debate. Prior to the announcement about the guidelines, the government’s stand was that the levy of service charge needs to be expressly consented to by a consumer after the meal. In view of the increasing unfair trade practices adopted by restaurants and hotels, the new CCPA Guidelines will develop a strong framework to enforce strict compliance by the stakeholders with regard to the service charges imposed by restaurants and hotels since CCPA has the authority to levy penalties and order an investigation by the District Collector or the local police into any unfair trade practice.

Richa Pushpan, Intern at S.S. Rana & Co. has assisted in the research of this article.

[1] https://consumeraffairs.nic.in/sites/default/files/file-uploads/latestnews/Guidelines%20to%20prevent%20unfair%20trade%20practices%20and%20protection%20of%20Consumer%20Interest%20with%20regard%20to%20levy%20of%20service%20charge%20in%20hotels%20and%20restaurants.pdf

[2] Ibid.

[3] https://www.bbc.com/news/world-asia-india-62056711

[4] https://indianexpress.com/article/lifestyle/food-wine/hotels-miffed-by-the-central-consumer-protection-authority-service-charge-guidelines-nrai-says-they-have-no-legal-standing-8013771/lite/

[5] https://pib.gov.in/PressReleseDetailm.aspx?PRID=1839133

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