As the Department of Consumer Affairs has come out
with a circular against hotels and restaurants charging Service Charges
from customers as a practice, the division in the hospitality industry
on the issue has come to the fore on the issue. While the department
communiqué has stated that the government has taken the views of Hotel
Association of India (HAI) on the issue, other associations like
Federation of Hotel & Restaurant Associations of India (FHRAI) and
National Restaurant Association of India (NRAI) has come out openly
against the government order on stating that, “service charge’ is legal
and is an accepted ‘business practice’ worldwide.
The order from
the Department of Consumer Affairs has stated that it has called for
clarification from the Hotel Association of India on the matter, which
have 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.
Service Charge is not unfair trade
practice, it is perfectly legal standard business practice worldover,
said Amitabh Devendra, Secretary General of FHRAI. He said that the
consumer cannot decline service charges if it is displayed prominently
in the menu or at the restaurant.
Kamlesh Barot, Director, VIE
Hospitality also questioned the stand taken by the HAI on the issue. He
questioned the way the government and the department derived at a
conclusion on an issue taking inputs from one industry association which
largely represents five star hotels in the country. Service Charge is
an accepted business practice across the world, he said. He said that
industry associations like FHRAI which represent 85% of the industry
have asked its members to display the Service Charges prominently when
the issue cropped up few years ago. “Service charge collected is
distributed among the staff equally,” he said.
“If you today do
not want to pay the service charge, you have the discretion of walking
out of the restaurant and going to some other restaurant where service
charge is not levied. But after having the food at the restaurant,
consumers cannot leave without paying the amount mentioned in the menu.
If the service charge is not mentioned in the menu, the restaurant
cannot charge for it,” added Barot.
Bharat Malkani, President,
FHRAI said, “When you come to a restaurant, the menu card identifies the
service charge. If the consumer doesn’t want to pay, is not forced to
come to that restaurant. Once you enter an establishment, when you see
the price and the service charge that is part of the menu. Under the
circumstances the consumer feels that the value proposition is
acceptable, he pays. If not, he won’t pay.”
Association of India (NRAI), apex body of organised restaurant industry
in the country, has come out clarifying its stand on the issue. The
Association has cited various court orders in favour of Service Charges.
Service Charge has been upheld by the National Consumer Disputes
Redressal Commission, in Nitin Mittal vs. Pind Baluchi, (2012) NCDRC
444; by Monopolies and Restrictive Practices Commission, New Delhi
(MRTP) in 2001; and Judgments passed by Honourable Supreme Court in the
cases of Wenger & Company and others Vs. Their Workmen (1963) and
Ram Bagh Palace Hotel, Jaipur Vs. The Rajasthan Hotel Workers Union,
Jaipur (1976), the Association cites.
“It is a matter of policy
for a restaurant to decide if service charge is to be levied or not.
Information regarding amount of service charge is to be clearly
mentioned / displayed by restaurants on their menu cards or otherwise
also displayed, so that customers are well aware of this charge before
availing the services and can use their discretion of not using the
facility offered by the restaurant,” the Association clarifies.
Panchamia, President, PHA said, “I am against the government’s decision
of making the service charge discretionary. How can one decide whether a
service is good or bad, what are the parameters to check that. The
government has imposed service tax on the consumers isn’t that quite
contradictory that service charge is discretionary whereas service tax
is mandatory. Internationally, most of the restaurants levy service
charge. It is an acceptable norm all over the world.”
restaurateurs seem divided on the issue of Service Charge. “The service
charge should be on the complete discretion of the customer and his
satisfaction. It should not be imposed on them. Unfortunately many
restaurants charge 10% or more but give only an insignificant portion of
the same to their employees. The restaurants should focus on giving
premium services to all their guest and let the customers decide if they
want to pay for the good service rendered,” said Samira Chopra,
Director, Cybiz BrightStar Restaurants, the franchisee of Carl’s Jr.
premium burger chain.
Anurag Katriar, Executive Director and
CEO, deGustibus Hospitality Pvt. Ltd. added that levying service charge
is an established practice of several years and it has even been upheld
in the court of law. Most of money collected goes to the staff and is an
integral part of their incomes. Discontinuation of the same at this
stage will adversely impact millions of workers and therefore we plan to
continue levying the service charge as before.