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Wednesday, 04 January, 2017, 11 : 30 AM [IST]

Hospitality industry associations divided on the Service Charge issue

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.”
National Restaurant 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.

Neerav 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.”

Even 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.
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