While dining out in hotels and restaurants, most of us had that moment wherein our eyeballs popped out, seeing the insane amount of service charges. Most of the time, only bills reveal this big monetary surprise. Now this upper market culture has come under perusal, as the central government comes up with new guidelines, warning hotels and restaurants against this practice citing the guidelines issued in April 2017, which says that a customer’s entry into a restaurant cannot itself be construed as consent to pay a service charge.

Rohit Kumar Singh, the secretary of Union Consumer Affairs, says, “Any restriction on entry based on payment of service charges is a violation of the Consumer Protection Act. Since this issue impacts consumers at large on a daily basis and has significant ramifications on the rights of consumers, the department construed it necessary to examine it with closer scrutiny and detail.” 

During the meeting which the DoCA held week with the industry stakeholders, major issues raised by the consumers on the National Consumer Helpline of DoCA relating to service charges such as compulsory levy of service charge, adding the charges by default without the express consent of the consumer, embarrassing consumers if they resist paying such charge, etc. were pointed out.

How Does Service Tax Differ from Service Charge?

Basically, a tax imposed by the government on service providers on a certain level of service transaction that is taken from the customers is referred to as service tax. Besides, a service charge is a fee collected by the hotels or restaurants from the customers on behalf of the server who comes and serves the customer, which will be included in the bill when we dine out in restaurants. The charge will be around five to ten percent. 

Where Does the Tax Go? What Do the Restaurant Owners Say?

Many restaurant owners think the collected service charge will be a matter of individual policy. 

In an interview with TOI, Manas Wadhwa, who owns several restaurants like Desi Vibes, Imperial Spice, and the recently launched K se Kulcha, says, “There is no illegality in levying such a charge. Information regarding the amount of service charge is mentioned or displayed by restaurants on their menu cards and otherwise also displayed on the premises, so that customers are well aware of this charge before availing the services. Once the customer is made aware of such a charge in advance and then decides to place the order, it becomes an agreement between the parties, and is not an unfair trade practice.”

Geetu Mohani, COO, The Caffeine Baar, says, “Collection of service charges is voluntary and not mandatory by the law. One of the most important reasons why we levy service charges is that employees in the F&B sector usually get paid much lower than in any other industry and when they get extra benefits like service charges; customer service gets better, attrition is low, and the employees are able to make extra cash without having to do another part-time job to meet their needs. The Caffeine Bar charges seven percent on all in-house/dine-in orders and clearly mentions on its menu card that if a customer is dissatisfied with service, they will waver it.”

Col. Manbeer Choudhary, the Chairman cum Managing Director, Jewels Group of Hotels, says, "In my opinion, everybody should understand that this service charge does not go to the restaurant owners but is meant for the welfare of the staff, especially the backend staff. I believe that this should be distributed across the organization's staff. Not just Stuarts, captains, or waiters serving the guests but also the ones working in the background. Like people who are responsible for cleanliness and sanitation, backend staff of restaurants that are cleaning utensils or involved in mopping floors, etc. This impression should be very clear to the government that this service charge is not filling the pockets of the owners. This service charge is meant to share with the backend staff who are adding value to the work system and are equally contributing to the hotel's functioning.”

How Does it Impact Common People?

People usually like to dine out, and they already pay a huge amount for the food in the restaurants. For them, the service charges won’t be considerable sometimes, but they will be thugged for no fault of theirs. It is not good to impose such service charges on common people. Entrepreneurs believe that the power should be in the hands of the consumer. Common people should decide whether they want to give this fee for the service, as the service charge is not mandatory as per policy. When the food is worth paying a huge amount with the proper service, paying a five to ten percent bill is not a big deal if they are satisfied. When the customer is not happy with the food, they choose not to pay the amount. In such cases, hotel managers start arguing, which makes the dining experience unpleasant. 

According to consumer organizations, levying service charges is patently arbitrary and constitutes an unfair as well as restrictive trade practice under the Consumer Protection Act.

 

Hospitality sector experts have come up with a possible solution as restaurants are all within their rights to charge for something flagrantly mentioned on their menu. So when someone orders a dish, they know in advance all the charges that they will have to bear. Unless the service was really sad and not worth acknowledging, customers should pay for its customer. It is quite irksome to see a bill that has a hefty amount of taxes added to the price of the actual food consumed. While customers and government feel that a service charge is a replacement for tips and should be a voluntary charge, this debate has been running for the last five years. Finally, to conclude all these debates, all taxes should be made as part of the maximum retail price. In that case, the restaurant can build for a service charge within the MRP, and then no one will refute the charge.