To pay or not to pay? The debate over service charge levied by restaurants on customers

As there are no standard guidelines for service charges, the restaurant owners charge the amount as per their discretion. The charges can vary between 5- 20 percent depending on the service and the restaurant management.

New Delhi, Jun 06: Imagine, you went for a family dinner, not enjoyed the meal at the restaurant, and yet end up paying extra as a service charge while clearing the bill. Distressing, isn't it? Well, this may soon change.

The government has asserted that restaurants cannot add a 'service charge' to the food bills, though customers at their discretion can give "tips" separately.

'If restaurant owners want to pay higher salaries to their employees, they are free to increase rates on their food menu as there are no price controls in the country,' said Union Minister Piyush Goyal.
He also dismissed contentions of restaurant owners that they would incur losses if the service charge is done away with.

Govt VS restaurants

The Ministry of Consumer Affairs is planning to come up with a legal framework to stop restaurants levying service charges on customers as the practice is "unfair".

However, a national food industry body expressed unhappiness over the government's move to come out with a legal framework to stop restaurants levying service charges and termed it "unfortunate".

The government's move will be a "loss" to these ordinary staffers only, as the extra amount if added to the selling price, will be also factored in while charging rental commissions by landlords and by aggregators engaged in the delivery of food, say restaurant owners.

What is a service charge?

A service charge is a tip that you pay for services rendered. Service charges are levied by the restaurant owners and the amount will go into their pocket.

Restaurants can charge for services rendered like serving the food at the table, cleaning the table etc.
As there are no standard guidelines for service charges, the restaurant owners charge the amount as per their discretion. The charges can vary between 5- 20 percent depending on the service and the restaurant management.

The main issue

Customers have often raised issues about some restaurants levying service charges compulsorily, while few restaurants are adding it as default without taking the consent of the consumer.
The consumers have flooded the Ministry of Consumer Affairs, Food & Public Distribution helpline about being embarrassed by the restaurant if they resist paying such a charge.

2017 guidelines on service charge

Charging of Service Tax is not valid. In April 2017, the Government issued guidelines on fair trade practices related to charging Service charges from the consumer by hotels/restaurants.

As per the guidelines, Service Charge is optional and payment of it depends entirely upon the discretion of the consumers.

The guideline clearly states that "Tips or gratuity paid by a customer is towards hospitality received by him/her beyond the basic minimum service already contracted between him/her and the hotel management. It is a separate transaction between the customer and the staff of the hotel or restaurant, which is entered into, at the customer's discretion.

Placing of an order by the customer amounts to his/her agreement to pay the charges on the menu card along with the applicable charges.

Charging for anything other than the prices mentioned on the menu card and/or restricting the customer's entry or forcing him/her to pay the service charge as a pre-condition to placing the order would amount to unfair trade practice.

What can a customer do when a restaurant collects mandatory service charge?

An aggrieved consumer can approach a consumer forum of appropriate jurisdiction for redressal of his grievance related to charging of service charges by hotels and restaurants.