The Ministry of Consumer Affairs, Food and Public Distribution has written a letter to National Restaurant Association of India (NRAI) saying the restaurants are collecting service charges from consumers by default.
- Even though collection of any such charge is voluntary and at the discretion of consumers and not mandatory as per law, says the letter.
Components of a restaurant bill
- A restaurant bill in India comprises food charge (from the menu), with an addition of service charge (anywhere between 5 to 15 per cent) and a 5 per cent GST on this amount (IGST+SGST). This is for all kinds of standalone restaurants.
- In case a restaurant is located inside a hotel wherein room rate is upwards of Rs 7,500, the GST would be 18 per cent.
- The GST is a mandatory component as per law.
- But, it is the service charge which is supposed to be optional.
- Most restaurants decide the service charge on their own, and print it at the bottom of the menu with an asterisk.
- It is this component which has come under dispute from time to time, with consumers arguing they are not bound to pay it.
Restaurant owners logic
- Information regarding the amount of Service Charge is mentioned/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.
- GST is also paid on the said charge to the Government.
What government says?
- Hotels and restaurants charging tips from customers without their express consent in the name of service charges amounts to unfair trade practice.
- The Ministry’s guidelines, published in 2017, say that the entry of a customer in a restaurant could not itself be construed as a consent to pay service charge.
- Any restriction on the entry of a consumer by way of forcing the person to pay a service charge as a condition of placing an order amounts to “restrictive trade practice” under the Consumer Protection Act.
- The guidelines clearly mention that placing an order by a customer amounts to their agreement to pay the prices displayed on the menu card along with the applicable taxes.
- Charging for anything other than that without express consent of the customer would amount to unfair trade practice as defined under the Act.
(Sources: Indian Express and Economic Times)
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