Prior to 2016-2017, it was not uncommon for diners at restaurants to be slapped with service charges ranging between 5-20 percent, and statutory taxes on top of that.
Subsequently, a series of guidelines issued in 2016 and 2017 made service charges optional at the hands of patrons.
However, many hotels and restaurants added service charges by default without informing customers that they are optional. Indeed, many insisted on such charges even when customers objected to the same, saying that the customer had consented to the same when she entered the establishment — because the restaurant would have a notice by the entrance saying that by entering the establishment one is consenting to such charges.
On account of the multitude of complaints received from various consumers, the Central Consumer Protection Authority (CCPA) issued guidelines on 4 July 2022, prohibiting hotels and restaurants from levying such charges by default.
The CCPA’s rationale for this is that the service cost — like other costs — should be inherent in the price of the food or beverage.
Thus, the price should include both the goods and service components, and charging anything more would be deemed an unfair trade practice under the Consumer Protection Act (CPA), 2019.
Any sort of tip or gratuity for the hospitality is a separate transaction between the hotel staff and the consumer. This is entirely at the consumer’s discretion, depending on his experience at the establishment.
The service charge guidelines issued by the CCPA to protect the rights of the consumer are as below:
• No hotel or restaurant shall add service charge by default to the bill.
• Service charges shall not be collected from consumers by any other name.
• No hotel or restaurant shall force a consumer to pay service charges and shall clearly inform that it is voluntary, optional, and at the consumer's discretion.
• No restriction on entry or provision of services based on collection of service charge shall be imposed on consumers.
• Service charge shall not be collected by adding it to the food bill, and levying GST on the total amount.
The following remedies are available to a consumer who finds that a hotel / restaurant is levying service charges, and / or violating the guidelines:
• Consumers may request the establishment to remove the levied service charge from the bill amount.
• Consumers may call 1915 or use the National Consumer Helpline (NCH) app and lodge a complaint with the NCH. The NCH works as an alternative dispute redressal mechanism at the pre-litigation level.
• If the consumer’s complaint is not resolved through the above mechanism, they may file a complaint against unfair trade practices with the Consumer Commission. The complaint can be filed electronically through the e-daakhil portal (www.edaakhil.nic.in).
• Finally, the consumer can submit a complaint to the district collector of the concerned district. The complaint may also be emailed to the CCPA at com-ccpa@nic.in.
After giving the other party an opportunity to be heard under section 20 of the Act, if the CCPA is satisfied that there was a violation, it may pass an order as follows:
• To refund the unfair charges to the customer.
• To discontinue the unfair practices which are prejudicial to consumer interest.
In an order dated 20 July 2022, the Delhi High Court has stayed the service charge guidelines till 25 November. The court said that it needs to be deliberated whether the issue of pricing and the levy of a service charge would fall within the ambit of Section 2 (47) of the CPA.
The stay was given on a conditional basis, and the court held that restaurants shall not levy a service charge on any take-away items, and shall also ensure that the service charges that they propose to be levy in addition to the prices and taxes payable are prominently displayed.
Aggrieved with the stay, the CCPA has filed an appeal before the High Court, which is due to be heard on 31 August 2022.
While consumers have welcomed the guidelines, as expected, the industry has pushed back hard. Even if implemented, one cannot rule out that this will not result in hotels and restaurants hiking their prices.
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