Hope court rules on restaurant service charge in favour of consumers: Consumer Affairs Secy Rohit Singh

Still confused about whether to pay service charges at a restaurant or not.

Well! There could be a decision soon on the matter, shared Consumer Affairs Secretary Rohit Kumar Singh in an exclusive conversation with CNBC-TV18. "So it's there in the court and I think one more hearing it will be sorted out, hopefully in favour of the consumer of this country," he said.

Singh, who is set to demit his office on March 31, in an exit interview said, "There is no tussle here. We are just fighting for the rights of the consumers and the consumers who go and eat in restaurants. We are saying, that we have the firm belief that a service charge is like a gratuity or a tip.

And it cannot be forced upon you only when you are happy with the service you pay the tip. And all that argument about, you know, paying the waiters out of that Kitty is not a logical argument because we are saying, okay, if you want to do that, you increase the price on the menu, but don't disguise the charges, don't fool the consumer. That's the fundamental principle."

It was in June 2023, after taking note of the clash between the staffers of a restaurant in Noida and its customers over service charges, the Consumer Affairs Ministry wrote to restaurant and hotel associations to advise their members "not to insist on levying of service charge on the consumers on a mandatory basis".

Post this, the Central Consumer Protection Authority (CCPA) in a set of guidelines issued on July 4 said that service charges shall not be collected from consumers by any other name. "Service charge shall not be collected by adding it along with the food bill and levying GST on the total amount," the guidelines said, with an aim to prevent unfair trade practices and protect consumer interest with regard to levying of service charge in hotels and restaurants.

The move led to a debate and the matter landed in court, with the restaurant and hotel industry challenging the guidelines. It was in September 2023, when the the Delhi High Court, in an interim order, asked members of the Federation of Hotel and Restaurant Association of India (FHRAI) to replace the term 'service charge" with 'staff contribution'. It further ordered that the amount charged from consumers should not exceed 10% of the total bill.

While hearing the case, Justice Pratibha Singh of the Delhi High Court said FHRAI-associated restaurants and hotels will have to specify in the menu in bold letters that tips need not be given after staff contribution is paid by the consumers.

"...the members of FHRAI shall use the terminology ‘staff contribution’ for the amount of service charge that they are currently charging," the High Court ordered. It added that the amount should not be over 10% of the total bill amount, excluding GST.

However, Singh shared that "even the percentage is different. Somebody will charge ₹5, somebody will say ₹10, somebody will say ₹12. So this is not done. You know you have to tell, just by putting it in the window that this restaurant charges, service charges, it does not. You cannot, you know it's like saying for entering a mall you will be charged ₹50. Why? Any charge has to be justified."

He further added that consumers are forced into an uncomfortable position, forcing them to pay these charges. "When the bill comes, it says taxes, of course, everybody has to pay and then it says "SC" or the service charge, half of the people don't know what SC is.

And you are there with your family and guests, your boyfriend or girlfriend and now you don't want to fight there in front of your esteemed guest there. And then you know that is being forced upon you. And this argument that you pay waiters extra of that is not if I have to pay waiter extra, I will pay part of the gratuity or Kitty" is not justified," Singh explained.

The National Restaurant Association of India (NRAI) informed the Delhi High Court on October 3 that no law in the country bans restaurants from imposing a service charge along with the food bill. Lawyer Lalit Bhasin, who represented the NRAI, argued that the service charge is an agreement between restaurant management and its staff, making it a labour issue that can only be addressed by labour authorities.

According to Bhasin, the Department of Consumer Affairs lacks jurisdiction to issue a directive prohibiting restaurants from imposing service charges. Bhasin contended that Labor Courts and the Monopolies and Restrictive Trade Practices (MRTP) Commission have upheld the practice of restaurants levying service charges.

He further emphasised that a service charge can be applied as long as the customer is informed about it. However, the NRAI clarified to the court that they do not endorse the inclusion of a 'hidden service charge' on the bill without the customer's knowledge.