Hotels, restaurants barred from levying service charge by default

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The Central Consumer Protection Authority (CCPA) on July 4 prohibited hotels and restaurants from adding a service charge by default or without the customer's consent to food bills and allowed consumers to report violations.

The CCPA in response to an increase in number of complaints released guidelines for combating unfair trade practices and violations of consumer rights.

CCPA guidelines

As per the guidelines, "No hotels or restaurants shall add service charge automatically or by default in the bill," it added. "There should not be any collection of service charge by any other name."

The guidelines further stated that no hotel or restaurant has the right to demand a service charge from a customer. And, the service fee must be explicitly disclosed to the client as being optional, voluntary, and up to the client's discretion.

Additionally, the service charge cannot be collected by including it in the food bill and adding GST to the total amount. Any customer can ask the concerned establishment to deduct the service charge from the bill amount if they discover that a hotel or restaurant is charging one in contravention of the rules.

Online complaints

Customers can file a complaint with the National Consumer Helpline (NCH), which serves as an alternative dispute resolution process at the pre-litigation level, by dialling 1915 or using the NCH mobile app. Additionally, they can complain to the Consumer Commission.

Majority of CCPA recommendations followed: FHRAI

Gurbaxish Singh Kohli, Vice President, Federation of Hotel & Restaurant Associations of India (FHRAI), said the majority of the CCPA recommendations are already being followed by hotels and restaurants, and regretted that the hotel industry is constantly singled out.

“Most of these guidelines issued by CCPA are already followed by hotels & restaurants. It’s extremely disheartening that the hospitality industry is constantly singled out. We have explained over and over again that there is nothing illegal in collecting a service charge. It is a charge collected for the benefit of the staff which includes everyone from the waiters to the personnel working in the kitchen who have served a consumer directly and indirectly. Besides, no hospitality establishment coaxes a consumer to pay it if for any reason they choose not to. But the industry is being painted as the black sheep in the eyes of the consumer for no reason," said Kohli.

Kohli further asked the government to pass legislation that applies equally to all businesses.

"Ironically, there are several online websites and apps that charge convenience fees including the Government-run IRCTC. These do not even explain what the charge is for nor is the consumer given a choice to opt out of it. We ask the Government to introduce a law that is uniform to all businesses and that the hospitality industry is not discriminated against. We are an industry that creates jobs and at the end of it, any kind of ruling or order against the service charge will be detrimental to employees since they are the ones who will suffer,” added Kohli.

Recent violations on service charges

Despite the existing guidelines that any service charge is voluntary, up to the discretion of the customer, there are instances of some restaurants collecting the service charge from customers by default.

It was reported in May this year that  a consumer forum in Hyderabad fined an upscale restaurant for imposing a 5 per cent service charge on a customer and had instructed the hotel to keep the charge optional.

The court cited the Centre's April 2017 guidelines on levying of service charges by restaurants and hotels. It said according to the guidelines, "charging additional service charges to a customer beyond the price of the products without express consent from the customer amounts to unfair trade practice".

Also Read: Dept of Consumer Affairs cautions restaurants against forcefully levying service charges

The decision of the CCPA comes a month after Consumer Affairs Secretary Rohit Kumar Singh held a meeting with representatives of associations of restaurants as well as consumers. Singh had assured the government would come out with a legal framework to stop restaurants levying service charge from customers as the practice is "unfair".

Singh said that although the associations claim the practice is legal, the Department of Consumer Affairs was of the view that it adversely affected the rights of the consumers and is an "unfair trade practice".

Recently, Food and Consumer Affairs Minister Piyush Goyal asserted that restaurants cannot add 'service charge' to the food bills, though customers at their discretion can give "tips" separately.

(With inputs from PTI)