Service charge not mandatory at restaurants and hotels: Ministry of Consumer Affairs

January 16, 2017

Have you ever stormed out of a restaurant, regretting having paid their service charge? Well, you may never have to do that again. The Ministry of Consumer Affairs stated on December 14, 2016, that customers dissatisfied with the service rendered to them could choose not to pay the service charge levied by the hotel or restaurant. The Government had clarified earlier in the Parliament that the authorities could act against those levying a service charge without the knowledge and consent of consumers on charges of indulging in ‘unfair trade practices’. The statement also stressed the need of the State Government to sensitize businesses operating in the food and hospitality industry to display information that service charge is optional in their premises. The Ministry said this was done due to the increasing number of complaints from the consumers who said they were being forced to pay service charge in lieu of tips, between 5 % and 20%, irrespective of the kind of service provided.

Charging of service charge is a matter of policy of an individual restaurant

However, on January 2, 2017, the National Restaurant Association of India (hereinafter referred to as the ‘NRAI’) vociferously clarified that the charging of service charge is a matter of policy of an individual restaurant, and a customer not happy with the charging of the same has the discretion of not using the facility by the restaurant. The NRAI also stated that there are even judicial pronouncements to support that ‘service charge’ can be charged by hotels and restaurants. The same has been upheld by the National Consumer Disputes Redressal Commission, inNitin Mittal vs. Pind Baluchi (2012),Wenger & Company and others vs. their Workmen (1963) and Ram Bagh Palace Hotel, Jaipur vs. The Rajasthan Hotel Workers Union, Jaipur (1976).

The NRAI also assures that the charges would be clearly displayed in the menu cards of the restaurants so that the consumers are aware of all the charges they are paying.

However, the cases cited by the NRAI do not directly relate to the court favoring the charging of service charge from the consumers. Therefore, there is a need to further analyze the concerned judgements.

In Nitin Mittal vs. Pind Baluchi (2012), the petitioner filed the case relating to the difference in the charges for packed food and the food which was served in the restaurant. The Court held that there can be some difference in the above two charges, since it is a contractual matter between the parties and the extra charge may be for maintenance of the restaurants. In this concerned case, no emphasis was given solely on the matter of service charge by the court. However, the case was decided against the petitioners, since the petitioners were not clear with the issues and claims. The judgement cannot form a strong precedent in favor of charging of service charge.

In the case of, Management of Wenger & Co. vs. Their Workmen (1962), the issue revolved round the dispute between the hotel management and its workmen and the matter did not directly relate to the issue of payment of service charge by the consumers. Therefore, the NRAI has erred in citing this judgment as a precedent to back their argument in favor of paying service charge by the consumers.

Lastly, in the case of Rambagh Palace Hotel, Jaipur vs. The Rajasthan Hotel Workers (1976) though there is little mention about the dispute of service charge and the service charge being properly utilized for workers or maintenance and the dearness allowance given to the employees, however there is no significant mention of the issue relating to the payment and non-payment of the service charge by the consumers. Thus, this judgement also cannot be used as a judicial precedent by the NRAI to back their argument.

It will be interesting to note further developments in this matter as globally speaking, service charge is very common and known by different names like ‘tips’ in UK and ‘gratuity’ in the US.

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