TBI Blogs: What the Govt’s New “Voluntary” Label on Service Charges Really Means for You

The government has issued a clarification, stating that paying ‘service charge’ levied by hotels/restaurants is purely voluntary, and that consumers dissatisfied with services can have it waived off. But its implementation on the ground may not be easy. Rakesh Dubbudu from Factly digs deeper for answers.

The Ministry of Consumer Affairs, Government of India, recently 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 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 government tax or charge, restaurants’ charging of service charges is not an offence under the Finance Act, 1994. Hence the government cannot take any proactive action against hotels.

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The government’s latest press release also made a mention of the Consumer Protection Act, 1986. The act states that the consumer forum must treat 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, 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 consumer can complain against any of the following to the consumer forum:

  • An unfair trade practice adopted by any trader or service provider
  • The services hired or availed of, suffering from deficiency
  • A trader or service provider, who 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 or under any law
    • Agreed between the parties

In other words, dissatisfied consumers can approach the relevant consumer forum for redressal of the deficiency in service.

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Source: Flickr

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. The Association replied that the service charge is completely discretionary, and a customer dissatisfied with the dining experience can waive it off. Therefore, the government can deem that its suggestion has been accepted voluntarily.

The Ministry has written to the State Governments to sensitize companies, hotels, and restaurants about the provisions of the Consumer Protection Act. It has also advised them to disseminate information through displays at appropriate places about the discretionary/voluntary nature of ‘service charges’, and that a dissatisfied consumer can waive it 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.

Source: By Edsel Little (Flickr: Alinea 2012 - The Damage) [CC BY-SA 2.0], via Wikimedia Commons

Source: By Edsel Little (Flickr: Alinea 2012 – The Damage) [CC BY-SA 2.0], via Wikimedia Commons

In other words, if the hotels inform consumers and display the service charge on their menu cards, 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 will want to waive the service charges, and might say the hotel/restaurant’s service is unsatisfactory. 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, making its implementation difficult without any objective parameters.

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Featured Image Source: Flickr

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