Are restaurants charging service fees illegally?

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The meeting follows the government becoming aware of a number of media reports as well as grievances registered by consumers on the National Consumer Helpline (NCH).

The ministry’s letter points out that consumers are forced to pay service charges, often set at arbitrarily high rates by restaurants. They are also misled about the legality of these charges and harassed by restaurants when they ask to remove these charges from the bill amount.

The Department of Consumer Affairs previously issued guidance in April 2017, which noted that a customer’s entrance into a restaurant cannot by itself be construed as consent to pay the service charge.

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Any restriction on entry imposed on the consumer by requiring them to pay the service charge as a condition of placing an order for food and drink amounts to a “restrictive business practice” within the meaning of the Privacy Act. consumers.

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The guidelines mention that the placing of an order by a customer is equivalent to his commitment to pay the prices displayed on the menu card as well as the applicable taxes. Charging anything other than that, without the express consent of the customer, would amount to an unfair commercial practice within the meaning of the Act.

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Anku Sharma, Associate Director – Competition, Spice Route Legal, said the government would take proactive action on issues affecting the general public. Very few restaurants that take a service charge follow the 2017 guidelines, he says. Department of Consumer Affairs guidelines are recommendations.

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Needless to say, the restaurant industry has a different view. The NRAI, in a statement issued yesterday, asserted that there was no illegality in levying such a charge and that whether or not to levy a service charge is a matter of individual restaurant policy.

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She argued that once the customer, who is informed of these charges in advance, decides to place the order, it becomes an agreement between the parties and does not constitute an unfair trade practice.

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GST is also paid on service charges, the association added. Another industry body, the Federation of Hotel and Restaurant Associations of India, said in 2017 that while consumer rights are paramount, the rights of individual establishments must not be encroached upon.

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Are the industry’s arguments justified?

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Anku Sharma of Spice Route Legal says the agreement remains between the restaurant and the customer. Ultimately, it comes down to the extent to which the government can interfere with private contracts, he says.

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The Department of Consumer Affairs had in April 2017 said payment of service charges or tips to staff should be left to customers’ discretion and should not be binding. It is high time for the government to set the record straight on this issue, which has been dragging on for years. The meeting called by the government could be a step in the right direction.

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First published: Wednesday, May 25, 2022. 07:00 IST

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