It is made clear by the government that paying the “Service Charge” is optional. How challenging is its application?

The Ministry of Consumer Affairs warned, restaurants on Thursday, against adding a “service charge” to customer invoices, calling the practise “illegal.” According to the ministry, a legal framework will shortly be developed that, among other things, will stop lodging facilities from imposing the fee. The action is being prepared to safeguard consumer interests.

To discuss the issue of restaurant bills, the Department of Consumer Affairs (DoCA) called the Federation of Hotel & Restaurant Associations of India (FHRAI) for a meeting on Thursday.

In a previous explanation, FHRAI stated that service charge, also known as a “tip,” is the sum that customers tip the personnel of a restaurant or other comparable establishments.

What is service charge?

It is a cost that is assessed to customers for a particular treatment or facility, such as the use of an ATM outside of the bank’s network or paying with a credit card at a retailer. It can also be referred to as a maintenance fee or a customer service cost.

For items that go beyond using their products and maintaining a relationship with them, businesses generally charge a service fee. Things that demand more effort from the company or more one-on-one communication between customers and corporate representatives fall under this category.

The service charge is a fee that is added on top of the base price of the good or , but it is not an optional expense. The customer must additionally pay the service charge, which is whatever the business choose to charge, in order to purchase the good or service.

For instances like dropping below a minimum necessary balance, receiving a paper statement, carrying out an international transaction, or changing a debit card, many banks impose service fees. Some banks even mandate that an account remain open for a minimum amount of time before it can be closed, in which case an early closure fee will be assessed.

What does “Service Charge” mean politically?

Unlike “Service Tax,” “Service Charge” is not levied or collected by the government. Restaurants charge a service fee for the services they provide and keep that money for themselves. A customer is required to pay a “service charge” in many restaurants that can range from 5 to 20 percent, regardless of the kind of treatment they receive. The Finance Act of 1994 does not consider the collection of service fees by restaurants to be illegal, hence the government is unable to take any preventative measures against hotels.

The Consumer Protection Act of 1986 was also mentioned in the most recent government news release. A commercial practise that employs an unfair technique or deceptive practise for the aim of promoting the sale, usage, or supply of any goods or the provision of any service is to be treated as an unfair trade practise, according to the act. A consumer may file a complaint against such unfair trading practises with the relevant consumer forum, according to the statute. Any of the following entities can be the subject of a complaint to the consumer forum:

• a business or service provider engaging in an unfair business conduct

• The hired or accessed services are inadequate.

• A trader or service provider overcharged the price for the goods or the service.

• or as required by any legislation

• displayed on the products or any packaging that contains them

• shown on the price list he displayed by or pursuant to any law

• between the parties, as agreed

What is stated in the government’s clarification?

According to the government’s press release, the ministry requested clarification from the Hotel Association of India, which responded that the service charge is entirely optional and that a patron may request to have it waived if they are unhappy with their dining experience. It is therefore assumed to have been consented to voluntarily.

The ministry has written to the state governments to advise them to disseminate information through display at the appropriate place in the hotels that the “service charges” are discretionary/voluntary and that a customer dissatisfied with the services can have it waived off. The ministry also wants to sensitise businesses, hotels, and restaurants about the provisions of the Consumer Protection Act.

Is it simple to implement?

In response to a question in the Lok Sabha in November 2016, the government stated that if “service charges” are charged by hotels and restaurants without the knowledge and consent of the customers, it may be considered a “unfair trade practise” for which a customer may file a complaint with a consumer forum.

In other words, it might not constitute a “unfair trade conduct” if the hotels are alerting customers and disclosing the service charge on their menu cards. In actuality, the National Restaurant Association of India (NRAI) clarified in December 2016 that the imposition of a it was legal and that numerous judicial rulings had upheld it.

The government’s most recent statement is ambiguous as to whether or not hotels can collect  charges in the first place, despite certain towns, like Chandigarh, giving hotels explicit orders not to do so. The customer’s decision on whether or not to pay is left up to them. Most consumers typically ask for the service fees to be waived off and complain about the hotel’s or restaurant’s level of service. It is also conceivable for hotels and restaurants to disagree with a customer’s choice, which could result in a disagreement. The consumer forum may then become aware of all these issues. The government’s clarification essentially allows room for individual judgement, which makes its execution challenging in the lack of clear goals.