Service Charge in Restaurants is not mandatory – Govt

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It is a practice restaurants use to extract the tip from you after you’re through with the dining. Many have been known to add a ‘service charge’ in the range of 5-20 per cent, over and above the price of the meal and taxes.

However, there has a surge of complaints from consumers that they are being forced to pay this component, irrespective of the quality of service provided.

The Department of Consumer Affairs (DCA) has now addressed this grievance with a clarification issued on Monday, which states that service charge is a voluntary payment that a patron can refuse to shell out in case he feels the service provided to him is not up to the mark.
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In a press note issued today, the DCA says that it had called for a clarification from the Hotel Association of India on this issue. In its response, the association confirmed that payment of service charge is completely discretionary and should a customer be dissatisfied with the dining experience he can have it waived off. In other words, this component is deemed to be accepted voluntarily.

The DCA further states in its note: “The Consumer Protection Act, 1986 provides that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice, is to be treated as an unfair trade practice and that a consumer can make a complaint to the appropriate consumer forum established under the Act against such unfair trade practices.”

The DCA has also asked the State Governments to sensitise companies, hotels and restaurants in their jurisdiction about these provisions of the Consumer Protection Act, 1986. Eateries are also required have appropriate displays within their premises informing customers that ‘service charges” are discretionary/ voluntary and that a consumer dissatisfied with the services can have it waived off.

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Statement issued by Dept of Consumer Affairs on Service Charge

A number of complaints from consumers have been received that hotels and restaurants are following the practice of charging ‘service charge’ in the range of 5-20%, in lieu of tips, which a consumer is forced to pay irrespective of the kind of service provided to him.

The Consumer Protection Act, 1986 provides that a trade practice which, for the purpose of promoting the sale, use or the supply of any goods or for the provision of any service, adopts any unfair method or deceptive practice, is to be treated as an unfair trade practice and that a consumer can make a complaint to the appropriate consumer forum established under the Act against such unfair trade practices.

In this context, the department of Consumer Affairs, Central Government has called for clarification from the Hotel Association of India, which have replied that the service charge is completely discretionary and should a customer be dissatisfied with the dining experience he/she can have it waived off. Therefore, it is deemed to be accepted voluntarily.

The Department of Consumer Affairs has asked the State Governments to sensitize the companies, hotels and restaurants in the states regarding aforementioned provisions of the Consumer Protection Act, 1986 and also to advise the Hotels/Restaurants to disseminate information through display at the appropriate place in the hotels/restaurants that the ‘service charges” are discretionary/ voluntary and a consumer dissatisfied with the services can have it waived off.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.