India bans service charge at hotels and restaurants

The Union government issued new guidelines on Monday (4 July) to deem it illegal for restaurants and hotels to levy a service charge without the express consent of a diner, according to a statement by the ministry of consumer affairs, which also specified government helplines where customers can report violations.

The levy has been in contention for years now. In June, the government held a meeting with restaurant lobby and consumer rights groups, following which the ministry said on June 2 that it will draw up a new framework to bar services charges altogether.

The announcement on Monday now gives an enforceable shape to the government's directions on the matter: the practice of levying service charges by default has now been defined as an unfair trade practice by the Central Consumer Protection Authority (CCPA), a regulatory body set up in 2019.

"The guidelines issued by CCPA stipulate that hotels or restaurants shall not add service charges automatically or by default in the food bill. No collection of service charge shall be done by any other name. No hotel or restaurant shall force a consumer to pay service charge and shall clearly inform the consumer that service charge is voluntary, optional and at consumer's discretion," the government statement said.

People cannot by denied entry based on whether or not they consent to such charges and the amount cannot be "collected by adding it along with the food bill and levying GST on the total amount".

The statement added that consumers can first reach out to the business, and if the matter is unresolved, raise the dispute to the National Consumer Helpline (NCH) by calling 1915 or through the NCH mobile app, or send a complaint to the district administration.

"The consumer may also file a complaint against unfair trade practice with the Consumer Commission. The Complaint can also be filed electronically through e-daakhil portal…" it added.

The National Restaurants Association of India (NRAI) did not respond to requests for comment. Restaurant owners have in the past defended the practice by saying that ample declarations are made at premises for a customer to know that they will need to pay a service charge if they eat at their business.

An NRAI functionary, following the June 2 meeting, had said that the money collected as service charge was "not pocketed by the owner, it is equally distributed between everyone who works to make your experience better". The body added that by placing an order in an establishment that has explicitly declared its service charge rules amounts to an understanding that the customer accepts these charges.

Consumer rights organisations, on the other hand, contend that service charges are arbitrary and illegal since eateries are free to price food and beverages according to their policies.

Prior to Monday's announcement about the guidelines regarding service charge – the government's stand was that the levy needs to be expressly consented to by a consumer after a meal – were in the nature of a circular sent to all state governments, who had been asked to sensitise hotels and restaurants on the matter.

The CCPA guidelines now mean this will be enforceable since the authority has the power to levy penalties and order an investigation by the district collector or the local police into any unfair trade practice.

"It is only after completing the meal that the customer is in a position to assess the quality of service… if a hotel/restaurant considers entry of a customer to imply consent to pay a fixed amount, it is not correct," the guidelines said.