The Ministry of Consumer Affairs, Government of India issued a press release clarifying its stand on ‘Service Charge’ collected by many hotels & restaurants. The ministry has also written to various state governments in this regard. While the ministry has clarified that service charges are discretionary/ voluntary and a consumer dissatisfied with the services can have it waived off, it might be difficult to implement in practice.

What does the law say about ‘Service Charge’?

Service Charge, unlike ‘Service Tax’ is not imposed and not collected by the government. Service charges are collected by restaurants on the services offered by them and are retained by them. In many restaurants, ‘service charge’ in the range of 5-20% is collected, which a consumer is forced to pay irrespective of the kind of service provided to him. Since this is not a tax or charge imposed by the government, charging of service charges by restaurants is not an offence under the Finance Act, 1994 and hence government cannot take any proactive action on hotels.

The government’s latest press release also made a mention of the Consumer Protection Act, 1986. The act states 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. The act also states that a consumer can make a complaint to the appropriate consumer forum against such unfair trade practices. A complaint to the consumer forum can be made against any of the following

• An unfair trade practice adopted by any trader or service provider
• The services hired or availed of, suffer from deficiency
• A trader or service provider, has charged for the goods or for the service in excess of the price
  • Fixed by or under any law
  • Displayed on the goods or any package containing such goods
  • Displayed on the price list exhibited by him by or under any law
  • Agreed between the parties

In other words, consumers who are not satisfied with the services can approach the relevant consumer forum for the deficiency in service.

What does the Government’s clarification say?

The government’s press release mentions that the ministry has called for clarification from the Hotel Association of India, which 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 ministry has written to the state governments to sensitize companies, hotels and restaurants about the provisions of the Consumer Protection Act and also to advise them to disseminate information through display at the appropriate place in the hotels that the ‘service charges” are discretionary/ voluntary and a consumer dissatisfied with the services can have it waived off.

Is the implementation easy?

In response to a question in the Lok Sabha in November 2016, the government said that charging of ‘service charges’ by hotels and restaurants can be treated as ‘unfair trade practice’ if it is charged without the knowledge and consent of the consumers, against which a consumer can file a complaint in a Consumer Forum.

In other words, if the hotels are informing consumers and are displaying on their menu cards about the service charge, it may not amount to an ‘unfair trade practice’. In fact, the NRAI (National Restaurant Association of India)  issued a clarification in December 2016 that levy of ‘service charge’ is valid  and that many judicial pronouncements supported the levy of ‘service charge’.

While some cities like Chandigarh have issued clear instructions to hotels not to levy any service charge, the government’s latest clarification does not make it clear whether or not the hotels can levy service charge in the first place. It leaves it to the discretion of the customer whether or not to pay. Normally, most customers would want the service charges to be waived off and might say they are not satisfied with the service of the hotel/restaurant. It is equally possible that hotels/restaurants might not agree with the customer’s decision leading to a conflict. All these matters might then reach the consumer forum. In essence, the government’s clarification leaves scope for individual discretion and makes its implementation difficult in the absence of any objective parameters.